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Investment interest is defined in section 163(d)(3) as
follows:
(3) Investment interest.--For purposes of this
subsection--
(A) In general.--The term "investment interest"
means any interest allowable as a deduction under this
chapter (determined without regard to paragraph (1))
which is paid or accrued on indebtedness properly
allocable to property held for investment.
(B) Exceptions.--The term "investment interest"
shall not include--
(i) any qualified residence interest (as
defined in subsection (h)(3)), or
(ii) any interest which is taken into
account under section 469 in computing income or
loss from a passive activity of the taxpayer.
(C) Personal property used in short sale.--For
purposes of this paragraph, the term "interest"
includes any amount allowable as a deduction in
connection with personal property used in a short sale.
Section 163(d) provides limitations on the amount of
investment interest that is deductible in a year. For years
before 1987, the investment interest deduction is limited to net
investment income15 plus $10,000. Over the years 1987 through
15 Sec. 163(d)(4) defines net investment interest as
follows:
(4) Net investment income.--For purposes of this
subsection--
(A) In general.--The term "net investment income"
means the excess of--
(i) investment income, over
(continued...)
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