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limit or prohibit the taxpayer from deducting indebtedness
interest at all.
Section 163(h) provides that for an individual taxpayer,
personal interest is nondeductible. Personal interest is defined
in section 163(h)(2) as the residual of what remains after
considering five enumerated exceptions. These exceptions are:
(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).
Section 163(h)(2).
The first exception relating to interest paid on a trade or
business expense is the only exception that potentially relates
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Last modified: May 25, 2011