Allie Ray McCullen and Shurley G. McCullen - Page 12

                                       - 12 -                                         
          business of selling real estate.  Respondent contends that                  
          petitioners may not deduct interest related to developing and               
          selling real estate as a trade or business expense because that             
          activity was not a trade or business.  Respondent contends that             
          petitioners may deduct the interest as investment interest.                 
               2.   Interest That Petitioners Deducted as Farm Interest               
               Respondent contends that petitioners have proven only that             
          they paid $10,428 in interest for their farming activity for                
          1990.  Respondent contends that the following interest paid by              
          petitioners and deducted as farm interest is personal interest:             
                                   1990                                               
                    Lender                             Amount                         
                    New-East Bank (#8501000163,                                       
                    #8501001047, and #7501000074)      $5,394                         
                    First Hanover Bank                 8,126                          
                    Southern National Bank                                            
                    (#274-114025 and #273-018600)      2,074                          
                    Bank of Stanley                    1,826                          
                    United Carolina Bank #0174         567                            
                    First Citizens Bank               3,345                           
                         Total                    $21,332                             
               Petitioners contend that they may deduct these amounts as              
          trade or business interest because petitioner used the proceeds             
          from the loans for farming.                                                 
               3.   Background                                                        
               Generally, a taxpayer other than a corporation may not                 
          deduct personal interest.  Sec. 163(h)(1).1  Investment interest,           

               1 Sec. 163(h) provides in pertinent part:                              
                                                             (continued...)           




Page:  Previous  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  Next

Last modified: May 25, 2011