- 8 - reduces itemized deductions once a taxpayer’s adjusted gross income (AGI) exceeds the “applicable amount”. See Chu v. Commissioner, T.C. Memo. 2005-110. Trade or business expenses are not subject to this limitation. See Bishop v. Commissioner, T.C. Memo. 2001-82 n.5. In addition, trade or business expenses reduce the taxpayer’s AGI, thereby reducing the itemized deductions lost under section 68(a). Id. For petitioners to prevail on this issue, the interest expense must be “properly allocable to a trade or business”. See sec. 163(h)(2)(A). Section 1.163-8T, Temporary Income Tax Regs., 52 Fed. Reg. 24999 (July 2, 1987), provides the rules for the allocation of interest expense for purposes of section 163(h).6 Robinson v. Commissioner, 119 T.C. 44, 70 (2002). Debt is allocated to expenditures in accordance with the use of the debt proceeds. Sec. 1.163-8T(c)(1), Temporary Income Tax Regs., 52 Fed. Reg. 25000. In general, interest expense accruing on a debt during any period is allocated to expenditures in the same manner as the debt is allocated. Id. Subject to exceptions not relevant here, the allocation is not affected by the use of an interest in any property to secure the repayment of such debt or interest. Id. A trade or business expenditure is an expenditure 6 Temporary regulations are entitled to the same weight as final regulations. See Peterson Marital Trust v. Commissioner, 102 T.C. 790, 797 (1994), affd. 78 F.3d 795 (2d Cir. 1996); Truck & Equip. Corp. v. Commissioner, 98 T.C. 141, 149 (1992).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011