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Accordingly, petitioners' loss is not allowed pursuant to
section 165(c)(1). In the alternative, since petitioner was not
engaged in a trade or business, the loss is not allowed as a bad
debt pursuant to section 166(a). The loss is, however, a
nonbusiness bad debt pursuant to section 166(d). As such, it is
treated as a short-term capital loss. Secs. 166(d), 1222.
Issue 2. Bridgepoint
Respondent determined that the $703,659 loss petitioners
sustained with respect to Bridgepoint in 1986 is a capital loss
and that $285,142 of interest petitioner paid in 1986 relating to
Bridgepoint is investment interest. Petitioners assert that the
loss is ordinary and that the interest is business interest.
On October 29, 1984, petitioner and Wayne H. Lott, Sr.
(Lott) each acquired a 50-percent interest in Bridgepoint,3
taking title in the name of Wayne H. Lott, Sr., Trustee. On July
10, 1985, petitioner sold his interest to Lott for $1,250,000 on
an installment basis.
Lott thereafter entered into an agreement with an unrelated
partnership (the partnership), whereby the partnership would
purchase Bridgepoint and hire Lott to construct an office
building on the property. The partnership attempted, but was
3 The parcel of land was officially known as "Lot 2,
Hidden Valley, Phase B, Tract 4"; however, the parties refer to
the land and a corresponding plan to construct an office building
there as the Bridgepoint Project or Bridgepoint Venture.
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