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On Form 4797 (Sales of Business Property) attached to their
1991 return, petitioners reported that they bought a packing shed
(not otherwise described in the record) on March 11, 1989, having
an original basis of $35,104, reduced by depreciation of $1,820,
and sold it for $20,000, producing a $13,284 loss.
Petitioners deducted interest of $38,049 for 1990 and
$33,571 for 1991 on their Schedules C. Petitioners deducted
interest of $20,102 for 1990 and $16,289 for 1991 on their
Schedules F (Farm Income and Expenses).
OPINION
A. Parties' Contentions and Background
1. Interest Petitioners Deducted as a Trade or Business
Expense
Respondent contends that the following amounts of interest
paid by petitioners in the years in issue are investment interest
and not related to petitioner's trade or business:
1990
Lender Amount
First American Savings Bank $4,223
Mary S. McCullen 2,936
South Carolina National Bank 9,773
1991
Lender Amount
First American Savings Bank $4,964
Mary S. McCullen 2,711
South Carolina National Bank 5,823
Petitioners contend that they may deduct these amounts as
interest because the loans related to petitioner's trade or
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