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of $140,000 ($560 per acre). On its corporate tax returns, Form
1120, for the years at issue petitioner claimed a deduction for
this amount as an ordinary and necessary business expense. On
their individual tax returns for these years, the Maschmeyers
claimed mortgage interest deductions in connection with the lease
in the amounts of $25,031, $19,170, and $17,550.
The two tracts are essentially identical in soil quality,
grade, and drainage and have no improvements besides drainage
tile. About 30 percent of tract A is covered in woods and
consequently not used for cultivation. During the years at
issue, the tracts had access to some utilities. Sewer,
electricity, and telephone service were available to tract A.
Only electricity and telephone service were available to tract B.
Neither had access to municipal water. Both tracts were zoned
for residential use. The tracts are located about 15 to 20 miles
from downtown Indianapolis in a neighborhood consisting primarily
of agricultural land intermixed with single-family homes. During
the years at issue demand for undeveloped land in the
neighborhood was stable. But the neighborhood lies within a
narrow corridor formed by two major arteries to the Indianapolis
metropolitan area, I-65 and U.S. Highway 31, along which
considerable residential and commercial development was
occurring. The residential growth extending southward and
northward from the nearby cities of Greenwood and Franklin made
it likely that vacant land in this neighborhood would be subject
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