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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...)
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