Peter S. Pau and Susanna H. Pau - Page 28

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               Section 163(h) restricts home mortgage interest deductions             
          to interest paid on $1 million of acquisition indebtedness for              
          debt incurred after October 13, 1987.  Acquisition indebtedness             
          is defined as that which is "incurred in acquiring, constructing,           
          or substantially improving any qualified residence of the                   
          taxpayer, and * * * is secured by such residence."  Sec.                    
          163(h)(3)(B).  A taxpayer may be entitled to a greater deduction            
          if he has incurred home equity indebtedness up to $100,000, as              
          allowed by section 163(h)(3)(C)(ii).  There can be no additional            
          deduction where taxpayers fail to show that they had home equity            
          indebtedness.  See Notice 88-74, 1988-2 C.B. 385.  Home equity              
          indebtedness is defined as "any indebtedness (other than                    
          acquisition indebtedness) secured by a qualified residence".                
          Sec. 163(h)(3)(C) (emphasis added).                                         
               Petitioners, who purchased their home in 1989, did not                 
          demonstrate that any of their debt was not incurred in acquiring,           
          constructing or substantially improving their residence and thus            
          have failed to carry their burden of proof.  We therefore sustain           
          respondent's determination as to the amount petitioners may                 
          properly deduct for home mortgage interest.                                 
               To reflect the foregoing and issues previously resolved,               

                                             Decision will be entered                 
                                        under Rule 155.                               

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