Originally published on Passive Activities and Other Oxymorons on January 26th, 2011.
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CCA 201049026
I always thought of group homes as something that would be run on a not for profit basis. According to the blurb for this book I was wrong:
This guide gives concise, step by step instructions for starting a group home. The demand for group homes far exceeds the supply in a lot of areas in the US. Because of the aging baby boomers, demand is likely to continue to grow as government and individuals look for cost effective alternatives to assisted living and retirement homes.
Regardless of that, this CCA caught my eye. These are just excerpts from it, but they get the main point across pretty well.
House used to operate adult home care business that cares full-time for adults who can’t live on their own qualifies as IRC Sec(s). 168(e)(2) residential rental property, and consequently owners should determine depreciation for portion of house leased as dwelling units by its customers of adult home care business, but not portion of house that is owner-occupied, using a 27.5-year recovery period or 40-year recovery period if alternative depreciation system of IRC Sec(s). 168(g) applies.
In the facts in this advice, the rental units are bedroom apartments used to provide living accommodations within a building, and are not units in an establishment more than one-half of the units in which are used on a transient basis. Therefore, the rental units are dwelling units for purposes of § 168(e)(2). All units and associated common areas in the building, including the portions occupied by the taxpayers, are dwelling units, and no portion of the building is rented or used for commercial purposes outside of the taxpayers’ adult home care business. Consequently, 100 percent of the gross rental income from the building is rental income from dwelling units, even after taking into account the use of the dwelling unit by the taxpayers. In applying the 80-percent test in this case, the $2,000.00 per month allocated to the services that the taxpayers provide for their residents does not constitute gross rental income from the building because the services (24 hour supervision and care for the residents, laundry service, maid service, transportation) are other than those usually or customarily rendered in connection with the mere rental of rooms 1. Thus, in this case, the building is residential rental property. case), it is unimportant whether a particular cost for services is included in rental income or not, as 100 percent of gross rental income from the building is necessarily rental income from dwelling units.
This Chief Counsel Advice does not address whether § 280A limits the taxpayers’ deductions for the use of a portion of their residence for business purposes.
In addition, the term “dwelling unit” is defined differently under § 280A(f)(1) than under § 168(e)(2)(A)(ii)(I). The conclusions in this Chief Counsel Advice concerning whether the bedroom apartments used in the taxpayers’ business are dwelling units are limited to the analysis under § 168, and no inference should be drawn from this Chief Counsel Advice that these bedroom apartments are dwelling units for purposes of § 280A.
Upkeep of the house and landscaping are services customarily rendered in connection of the rental of rooms, and a portion of the monthly $2000 charge must be allocated to these services and included in both gross rental income from the building and rental income from dwelling units. The exclusion of charges for services other than those usually or customarily rendered in connection with the mere rental of rooms is relevant in the application of the 80 percent test only in the case of a building or structure containing both rental dwelling units and commercial rental space other than dwelling units. In the case of a building or structure comprised solely of dwelling units and associated areas (such as the instant