- 13 -
percent.11 The Notice of Trustee’s Sale, dated July 21, 1995,
specifies that a principal sum of $1,341,352 had been outstanding
since June 1, 1994, at the rate of “7 per cent per annum”. In
the absence of any evidence to the contrary, we presume that this
rate remained in effect during the entire period from June 1,
1994 (the date of default), to August 10, 1995 (the foreclosure
date).12 Thus, prior to the foreclosure, interest accrued at an
annual rate of 7 percent for a total of 435 days.
While the principal amount of the debt upon which the
interest accrued was $1,341,342, for debts incurred after October
13, 1987, section 163(h) restricts the residential mortgage
interest deduction to interest paid on $1 million of acquisition
indebtedness. See Pau v. Commissioner, T.C. Memo. 1997-43.
Petitioner’s mortgage was incurred on November 14, 1988. Thus,
using simple interest, we determine that a total of $83,425
(i.e., $1,000,000 � (.07 � 365) � 435) in deductible interest
accrued prior to the foreclosure.13
11The rate was linked to changes in the rate established for
certain negotiable Certificates of Deposit, as quoted by the
Federal Reserve Bank of New York.
12The Adjustable Rate Rider provides for the interest rate
to be re-indexed every 6 months beginning June 1, 1993. As a
result, there would have been no change in the interest rate
between July 21, 1995 (the date of the Notice of Trustee’s Sale),
and August 10, 1995 (the foreclosure date). Additionally, the
Notice of Trustee’s Sale gives no indication of any change having
occurred on either December 1, 1994, or June 1, 1995.
13Respondent first raised the sec. 163(h) limitation in his
(continued...)
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