- 12 -
interest, interest allocable to a trade or business (other than
the trade or business of performing services as an employee), and
qualified residence interest are not personal interest. Sec.
163(h)(2). However, investment interest may be deducted only to
the extent that the the taxpayer has net investment income. Sec.
163(d).
Deductions are a matter of legislative grace and are
strictly construed. New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934); Independent Co-op Milk Producers Association v.
Commissioner, 76 T.C. 1001, 1014 (1981). A taxpayer bears the
burden of proving that he or she may deduct the claimed expense.3
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
C. Effective Date of Section 163(h)
Petitioners contend that the personal interest deduction
limits of section 163(h) do not apply to interest they paid after
2(...continued)
treated as home equity indebtedness for any
period shall not exceed $100,000 ($50,000 in
the case of a separate return by a married
individual).
3Petitioners called Lee E. Lott (Lott) as an expert witness.
Respondent objected because petitioners did not provide an expert
witness report before trial as required by Rule 143(f).
Petitioners' counsel said that she wanted to ask Lott if
petitioners handled their interest deductions correctly on their
tax returns. We would have not considered Lott's testimony
because it was a legal opinion. Aguilar v. ILWU Local 10, 966
F.2d 443, 447 (9th Cir. 1992); Marx & Co. v. Diners' Club, Inc.,
550 F.2d 505, 509 (2d Cir. 1977); Estate of Cartwright v.
Commissioner, T.C. Memo. 1996-286. Petitioners did not raise
this issue on brief; thus we treat it as conceded.
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