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Individual taxpayers are not permitted to deduct personal
interest. See sec. 163(h)(1). Personal interest does not
include investment interest or qualified residence interest
(QRI). See sec. 163(h)(2)(B), (D).
QRI can arise from either acquisition indebtedness, home
equity indebtedness, or pre-October 13, 1987, indebtedness. See
sec. 163(h)(3)(A), (D). Acquisition indebtedness is any
indebtedness secured by the qualified residence of the taxpayer
and is incurred in acquiring, constructing, or substantially
improving any qualified residence of the taxpayer. See sec.
163(h)(3)(B). The aggregate amount of acquisition indebtedness
cannot exceed $1 million for any period. See sec.
163(h)(3)(B)(ii). Acquisition indebtedness also includes
indebtedness to refinance the qualified residence, so long as the
indebtedness satisfies the requirements of section 163(h)(3)(B).
Home equity indebtedness is any indebtedness secured by a
qualified residence to the extent the total amount of the
indebtedness does not exceed the fair market value of the
qualified residence, less the amount of acquisition indebtedness
of the qualified residence. See sec. 163(h)(3)(C)(i). The
aggregate amount of home equity indebtedness is limited to
$100,000 for any period. See sec. 163(h)(3)(C)(ii).
Pre-October 13, 1987, indebtedness is any indebtedness which
was incurred on or before October 13, 1987, and which was secured
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