John William Barck & Janie R. Barck - Page 9
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down payment or for a similar purpose, as respondent argues. We
therefore uphold respondent’s determination of the amount of gain
recognized on this transaction, as modified by the concession.
The third issue for decision is whether petitioners made
deductible interest payments in 1994 and 1995 that were not
claimed as deductions on their returns.
Interest is allowed as a deduction to non-corporate
taxpayers under section 163(a) only if it is not “personal
interest” as defined under section 163(h)(2). See sec.
163(h)(1). Interest which is not personal interest and therefore
may be deducted unless otherwise not allowed includes: (1)
interest paid or accrued on indebtedness properly allocable to a
trade or business other than that of performing services as an
employee; (2) any investment interest; and (3) any interest which
is taken into account under section 469 in computing income or
loss from a passive activity of the taxpayer. See sec.
163(h)(2)(A), (B), and (C).
Petitioners argue that petitioner borrowed $60,000 from his
sister for use in starting a “rental real estate” business.2
2Petitioners made this argument for the first time at trial,
but respondent did not object either to petitioners’ argument or
to their presentation of supporting evidence. We therefore treat
this issue as having been properly pled. See Rule 41(b)(1)
(“When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings.”); Parekh
v. Commissioner, T.C. Memo. 1998-151 (Rule 41(b) was satisfied
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