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to acquire the residence made within 90 days before or after the
date the debt was incurred.
In addition, Notice 88-74, supra, provides that a single
debt may qualify as partially acquisition and partially home
equity indebtedness. In general, home equity indebtedness is any
indebtedness, other than acquisition indebtedness, secured by a
qualified residence to the extent that the total debt does not
exceed the fair market value of the residence less the
acquisition indebtedness associated with such residence. Sec.
163(h)(3)(C). The limit on home equity indebtedness is $100,000
or $50,000 for married taxpayers filing separately. Id.
With these rules in mind, we turn now to the proper
allocation of petitioner's interest expense. Petitioner contends
that the interest should be allocated among the assets received
from his former spouse in proportion to the fair market value of
each asset at the time of transfer.10 Petitioner suggests in his
10Petitioner appears to rely upon Notice 89-35, 1989-1 C.B.
675, which provides special interest allocation rules for
investors who own shares in partnerships or S corporations.
Notice 89-35, 1989-1 C.B. at 676, provides:
Reasonable methods of allocating debt among the assets
of a passthrough entity ordinarily include a pro-rata
allocation based on the fair market value, book value,
or adjusted basis of the assets, reduced by any debt of
the passthrough entity or the owner allocated to such
assets.
* * * * * * *
For purposes of this notice, the determination of
(continued...)
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