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1986 because petitioners bought the Seattle Pump stock, and
signed a promissory note for it before the effective date of that
section. We disagree.
Section 163(h) applies to taxable years beginning after
December 31, 1986. Sec. 511(e) of the Tax Reform Act of 1986,
Pub. L. 99-514, 100 Stat 2085, 2249. Petitioners paid the
interest at issue in 1989, 1990, and 1991, all of which was
during petitioners' taxable years beginning after December 31,
1986.
Petitioners contend that section 162(a)4 or section 163(a)5
allows them to deduct the interest at issue here because Congress
did not amend those sections when it enacted section 163(h). We
disagree. Section 163(h) limits the deduction of personal
interest that was previously deductible under section 163(a).
D. Whether Petitioners May Deduct the Interest At Issue as
Trade or Business Interest Under Section 163(h)(2)(A) or
Investment Interest Under Section 163(h)(2)(B)
1. Background
4Section 162(a) provides, in part:
(a) In general. -- There shall be allowed as a
deduction all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any
trade or business * * *.
5Section 163(a) provides:
(a) General rule. -- There shall be allowed as a
deduction all interest paid or accrued within the
taxable year on indebtedness.
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