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jointly owned. Petitioners had borrowed money to buy the 1-acre
and 4-acre parcels.
D. Petitioners’ Interest Deductions
Petitioners claimed the following interest deductions on
Schedule C of their returns for the years in issue:
1989 1$ 53,098
1990 54,673
1991 54,141
OPINION
A. Contentions of the Parties
Petitioners contend that they may deduct the interest at
issue. They contend that the limitation in section 163(h) on the
deduction of personal interest does not apply because they signed
the sales agreement before section 163(h) was effective, and
because Congress did not intend section 163(h) to apply to the
owners of a corporation who were also employees of the
corporation. If section 163(h) applies, petitioners contend that
they may deduct the interest at issue because it is: (1) Trade
or business interest under section 163(h)(2)(A); (2) investment
interest under section 163(h)(2)(B); (3) an expense for the
production of income under section 212; or (4) qualified
residence interest under section 163(h)(2)(D).
1Respondent determined that petitioners may not deduct those
amounts, except respondent determined that petitioners may not
deduct $53,048 for 1989. There is no explanation for the $50
discrepancy.
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