MEMORANDUM FINDINGS OF FACT AND OPINION
SCOTT, Judge: Respondent determined a deficiency in petitioners' Federal income tax for the year ending December 31, 1982 in the amount of $ 700. Some of the issues raised by the pleadings have been disposed of by agreement of the parties leaving for decision whether certain property, owned by petitioner Patricia L. Osborne in Hillcrest Heights, Maryland was held for production of income or in an activity entered into for profit within the meaning of sections 212 of 183 1 so as to entitle petitioner to deductions for expenses with respect to and depreciation on the property and, in any event, whether petitioners are precluded from claiming these deductions by the provisions of section 280A.
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly.
Petitioners, husband and wife, who resided in Cockeysville, Maryland at the time of the filing of their petition in this case, filed their Federal income tax return for the calendar year 1982 with the Internal Revenue Service Center in Philadelphia, Pennsylvania.
On January 21, 1982, Patricia L. Osborne (petitioner) purchased from Doris Osborne and Matthew Osborne (the senior Osbornes) property located at 3803 24th Avenue, Hillcrest Heights, Maryland (the Hillcrest Heights property). The purchase price for the property was $ 90,000 payable over 30 years in 360 equal installments of $ 250 with zero percent interest.
The senior Osbornes are the parents of petitioner Peter C. Osborne.
On January 23, 1982 petitioner executed a note for $ 90,000 in favor of the senior Osbornes secured by a deed of trust on the Hillcrest Heights Property.
On January 29, 1982 petitioner leased the Hillcrest Heights property to the senior Osbornes. The lease was for a term of 14 years and called for a monthly rental payment of $ 0.00. The lease contained provisions for payment of utilities and cost of repairs, except interior repairs, by petitioner. Interior repairs were to be made by the senior Osbornes.
On their 1982 Federal income tax return petitioners claimed deductions for expense, including insurance and utilities, and for depreciation in connection with the Hillcrest Heights property.
Respondent disallowed those deductions on the bases that petitioners had failed to establish that the property was held for the production of income, and that even if the property was held for the production of income, no deductions were allowable because the property was held as a residence and used for personal purposes within the meaning of section 280A.
OPINION
Petitioner contends that she is entitled to expense deductions and depreciation on the house in Hillcrest Heights under section 2122 because the property is held for the production of income or in a transaction entered into for profit under section 183. Petitioners' primary contention is that the property would produce income when sold or rented after the lease to the senior Osbornes expired because of appreciation in its value. Respondent takes the position that the property was not held for the production of income or used in an activity entered into for profit in the year here in issue and alternatively that section 280A3 precludes the deductions because the property was used by petitioner as a residence within the meaning of that section.
Petitioner replies to respondent's section 280A argument by stating that she did in effect charge a fair rental value for the Hillcrest Heights property because of no interest being required on her note and her paying utilities bills. In our view the disallowed deductions for depreciation and other expenses are not to be allowed under the provisions of section 280A even if they were otherwise allowable. 4
"Section 280A, originally enacted as part of the Tax Reform Act of 1976 (Pub. L. 94-445, sec. 601, 90 Stat. 1520), is a response to congressional concern that rental of property used by the taxpayer as a residence afforded the taxpayer unwarranted opportunities to obtain deductions for expenses of a personal nature." (Footnote ref. omitted.) Bolton v. Commissioner,77 T.C. 104, 107-108 (1981), affd. 694 F.2d 556 (9th Cir. 1982). In 1981 section 280A was amended to provide that the rental of a dwelling unit to a family member or any other individual for a fair rental value was not to be considered the personal use of a dwelling unit by the taxpayer. the Senate Explanation to the 1981 amendments indicates that fair rental value was intended to be determined by considering, among other things, comparable rents in the area. Senate Explanation to Pub. L. 97-119, 127 Cong. Rec. S15487 (daily ed. December 16, 1981).
Section 280A(a) disallows those deductions otherwise allowable under chapter 1, which includes both section 212 and 183, with respect to a taxpayer's use of a "dwelling unit" as a residence during the taxable year. Section 280A(f)(1) includes within the definition of "dwelling unit" houses such as the Hillcrest Heights property. Subsection (f)(3) further makes section 183 inapplicable to a dwelling unit if (a) applies.
Section 280A(b) creates an exception for those deductions which are allowable without regard to their connection with an income producing activity or a trade or business. therefore that subsection authorizes deductions such as interest, of which we have none here, and taxes which respondent has previously allowed in the notice of deficiency.
Under section 280A(d)(1) a "dwelling unit" is considered used as a residence if it is used for personal purposes for a number of days exceeding the greater of 14 days or 10 percent of the number of days for which it is rented at a fair rental value. Section 280A(d)(2)(C) deems a dwelling unit to have been used for personal purposes where the unit is used "by an individual * * *, unless for such day the dwelling unit is rented for a rental which under the facts and circumstances, is fair rental." (Emphasis added.) Therefore the resolution to the section 280A issue in this case depends upon our determination of whether or not the Hillcrest Heights property was rented for less than a fair rental value so that the house would be considered to have been used for personal purposes by petitioner. 5
Petitioner insists the lack of rental paid by the senior Osbornes is not the determinative factor in this case. Specifically petitioner argues that section 280A(d)(2)(C) should not operate to disallow the claimed deductions. According to petitioner, the facts and circumstances present in this case should prevent a conclusion that the rent paid was less than the fair rental value. Respondent argues to the contrary. We agree with respondent.
Petitioner testified that the advantages to the senior Osbornes resulting from this sale/leaseback were that they no longer had to pay property taxes, no longer paid utilities, were spared the inconvenience of having repairmen enter their home for minor repairs, Mr. Osborne preferring to do these himself (incidentally saving petitioner this expense), could occupy "their" home rent free and received a monthly cash payment of $ 250 as well. 6 Petitioner fails to appreciate that in return for this "bargain" to the senior Osbornes exchanged the unencumbered ownership of their house, which in itself afforded them rent free occupancy, along with the opportunity or obligation to perform minor repairs, and the ability to sell the property without owner financing and roll the proceeds over into a new home under section 1034. 7 The senior Osbornes also exchanged the opportunity to rent the property for its fair rental value which petitioner states was $ 625 per month and rent a smaller house with the rental income while claiming the expenses themselves.
Petitioner further contends that the facts and circumstances indicate that the senior Osbornes in effect paid part of the rent by agreeing to an interest free loan to petitioner so that she paid no interest and the senior Osbornes received no taxable interest income. Petitioner testified that in 1982 she was relieved of the obligation to pay, and her in-laws relieved of the obligation to include in income, some $ 14,400 in interest, which amount according to her estimates would have been owed if she had borrowed the $ 90,000 at the prevailing 16-percent interest rate. This result seems inconsistent with her later testimony that she "had a good sum to invest." 8
Petitioner also argues that foregone interest "is economically indistinguishable from payment of the same amount under a rental obligation." We are unimpressed by this argument. Petitioner in her 1982 income tax return reported no rental income from the Hillcrest Heights property which she would have been required to report if she had received rental income. The senior Osbornes were entitled to the rent free occupancy of their house both before and after the transaction but afterwards they paid no property taxes, utilities, or major maintenance costs. However petitioner planned to receive substantial tax benefits in addition to buying a home which she stated had a fair market value of $ 90,000 for what in effect was much less. Interest, even at 16 percent, which has not shown to be a proper rate, on $ 18,500 is less than half of the amount petitioner stated to be the fair rental value of the property.
We agree with respondent that petitioner presented no evidence which would support her argument that the interest free loan was given in exchange for a portion of what would be the fair rental value. Petitioner did produce tables from which she argued how her investment method was more beneficial to her than a standard sale/leaseback at fair market rates and terms. These, however, were admitted for just that purpose, as figures which she prepared to illustrate her argument. We are not, as it is often noted, bound to accept the self-serving testimony of an interested witness. See Surloff v. Commissioner,81 T.C. 210, 239 (1983). Petitioner stated that $ 625 was the fair rental value of a comparable house. It is a comparable rental value that Congress directed be used in making the inquiry into fair rental property. On the basis of this record we conclude that petitioner has failed to establish that the senior Osbornes paid a fair rental value for the Hillcrest Heights property. Not only did the senior Osbornes pay less than the fair rental value, they paid no rental at all. That fact weighs very heavily in our facts and circumstances determination into whether the fair rental value was paid. This is not the first case in which section 280A has operated to disallow deductions where a rental below fair rental value was paid. 9 Accordingly, under section 280A(d)(2)(C) petitioner is considered to have used the residence for personal purposes. Regardless of petitioner's profit motive or lack thereof in entering into the transaction, petitioner is not entitled to the claimed deductions. Due to concessions by the parties, Decision will be entered under Rule 155.