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license was required under California law. In short, petitioner
has failed to substantiate her claim for a deduction, and
accordingly, no deduction is allowed for her automobile sales
license.
E. Interest Expense
Section 163(a) provides a deduction for interest paid or
incurred on indebtedness within the taxable year. Not all
interest incurred, however, is deductible.
In October 1989, petitioner borrowed $12,070.46 to purchase
a 1986 Pontiac Grand Prix at a 12.5-percent interest rate. In
1993 and 1994, petitioner paid $481.65 and $118.19, respectively,
of interest on this loan. Petitioner also paid $8,189.68 and
$7,386.58 of mortgage interest during the 1993 and 1994 taxable
years, respectively. Section 163(h) denies taxpayers a deduction
for personal interest paid or accrued during the taxable year
unless it fits within certain narrowly prescribed categories.
The interest paid by petitioner on her personal car loan during
1993 and 1994 is personal in nature and does not fall into one of
the excepted categories. Accordingly, petitioner is not entitled
to deduct the interest paid on her personal car loan. Section
163(h)(2)(D), however, allows a deduction for interest on a
qualified residence. Respondent concedes that petitioner is
entitled to deductions for the interest paid on the mortgage for
petitioner’s home during the 1993 and 1994 taxable years.
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