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allowable as a deduction, determined without regard to section
163(d)(1), that is paid or accrued on indebtedness properly
allocable to property held for investment. Sec. 163(d)(3)(A).
In general, interest expense on a debt is allocated in the
same manner as the debt to which such interest expense relates is
allocated. Debt is allocated by tracing disbursements of the
debt proceeds to specific expenditures. Sec. 1.163-8T(a)(3),
Temporary Income Tax Regs., 52 Fed. Reg. 24999 (July 2, 1987).
Interest expense allocated to an investment expenditure is
treated for purposes of section 163(d) as investment interest.
Sec. 1.163-8T(a)(4)(i)(C), Temporary Income Tax Regs., 52 Fed.
Reg. 25000 (July 2, 1987). The term "investment expenditure"
means an expenditure (other than a passive activity expenditure)
properly chargeable to capital account with respect to property
held for investment within the meaning of section 163(d)(5)(A) or
an expenditure in connection with the holding of such property.
Sec. 1.163-8T(b)(3), Temporary Income Tax Regs., 52 Fed. Reg.
25000 (July 2, 1987). Section 163(d)(5)(A) provides that in
general the term "property held for investment" includes any
property which produces income of a type described in section
469(e)(1) (i.e., gross income from interest, dividends, annu-
ities, or royalties not derived in the ordinary course of a trade
or business and gain or loss not derived in the ordinary course
of a trade or business that is attributable to the disposition of
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