The spreadsheet assumes that, near the end of the year, the vacation home owner has rented the property for 260 days and has used the property for personal reasons a total of 26 days. Thus, one more personal day will invoke the Sec. 280A vacation home limitations however; such a scenario will permit the taxpayer to deduct the allocated personal interest as well.

Using the spreadsheet, answer the following questions put forth by your client. Please be sure to address these answers in your research memo to the file as well as in your client letter.

1 The saved version of the spreadsheet currently assumes that the total annual interest expense related to the property is $6,875. Based on this assumption, should your client use the property one additional day for personal reasons?

2. Examine the allocated interest and taxes closely in the ?Current Result? columns of the spreadsheet. Notice that even though the Bolton method is used for both interest and taxes, the same fraction does not apply to the two expenditures. Explain this apparent inconsistency. You may want to refer to the discussion of vacation rental homes in Chapter 11 of the text.

The interest expense may go up next year as his ARM is set to begin to adjust. Assuming the interest was to increase next year, what are some planning considerations that Mr. Vanilli should consider when he is determining the number of personal versus rental days next year? (Please note, I do not want concrete calculations, instead I want some general advice regarding deductions, carryovers etc. with support.)