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8T(m)(3), Temporary Income Tax Regs., 52 Fed. Reg. 25005 (July 2,
1987), provides:
Qualified residence interest (within the meaning of
section 163(h)(3)) is allowable as a deduction without
regard to the manner in which such interest expense is
allocated under the rules of this section. In
addition, qualified residence interest is not taken
into account in determining the income or loss from any
activity for purposes of section 469 or in determining
the amount of investment interest for purposes of
section 163(d). * * *
Because qualified residence interest is not taken into account in
determining passive interest or investment interest, we must
first determine what amount, if any, of petitioner's interest
expense is properly characterized as qualified residence interest
under section 163(h)(3).
Section 163(h)(3)(A) defines qualified residence interest as
any interest which is paid or accrued during the taxable year on
acquisition indebtedness or home equity indebtedness with respect
to any qualified residence of the taxpayer. The term acquisition
indebtedness includes any indebtedness which is secured by a
qualified residence and which is incurred in acquiring,
constructing, or substantially improving such residence. Sec.
163(h)(3)(B). The total amount treated as acquisition
9(...continued)
the indebtedness satisfies the definition of "secured debt" under
sec. 1.163-10T(o), Temporary Income Tax Regs., 52 Fed. Reg. 48417
(Dec. 22, 1987), or that petitioner's residence meets the
definition of "qualified residence" under sec. 1.163-10T(p),
Temporary Income Tax Regs., 52 Fed. Reg. 48418 (Dec. 22, 1987).
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