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computing income or loss from a passive activity of the taxpayer
(passive activity interest), or qualified residence interest.4
The term "investment interest" is defined to mean interest
"which is paid or accrued on indebtedness properly allocable to
property held for investment." Sec. 163(d)(3)(A). However,
investment interest does not include any qualified residence
interest or any interest taken into account under section 469 in
computing income or loss from a passive activity of the taxpayer.
Sec. 163(d)(3)(B). In general, the deduction for investment
interest is limited to the noncorporate taxpayer's net investment
income for the taxable year. Sec. 163(d)(1).
4Sec. 163(h)(2) provides:
For purposes of this subsection, the term "personal
interest" means any interest allowable as a deduction
under this chapter other than--
(A) interest paid or accrued on indebtedness
properly allocable to a trade or business (other than
the trade or business of performing services as an
employee),
(B) any investment interest (within the meaning of
subsection (d)),
(C) any interest which is taken into account under
section 469 in computing income or loss from a passive
activity of the taxpayer,
(D) any qualified residence interest (within the
meaning of paragraph (3)), and
(E) any interest payable under section 6601 on any
unpaid portion of the tax imposed by section 2001 for
the period during which an extension of time for
payment of such tax is in effect under section 6163 or
6166 or under section 6166A (as in effect before its
repeal by the Economic Recovery Tax Act of 1981).
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Last modified: May 25, 2011