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income of $10,864 from these properties. Petitioners did not
employ a real estate agent to manage any aspect of the
apartments. Rather, petitioner handled the advertising for the
apartments, rented the apartments, collected the rents, and did
all of the maintenance, including painting, plumbing repairs,
etc. Petitioner spent at least 30 hours a week managing the
apartments. For the purpose of the New York State social
services, it has been determined that during 1996 the rental
apartments were assets of petitioners’ trade or business.
On Schedule A, Itemized Deductions, of their 1996 Federal
income tax return petitioners deducted $4,656 paid to Wilmington
Trust as investment interest. Respondent disallowed the
deduction.
Section 163(d)(1) limits a noncorporate taxpayer’s deduction
for investment interest to “the net investment income of the
taxpayer for the taxable year.” Section 163(d)(4)(A) defines
“net investment income” as the excess of investment income over
investment expenses. Section 163(d)(4)(B) provides that
“investment income” is the sum of the gross income from property
held for investment plus the ordinary gain attributable to the
disposition of such property. Section 163(d)(5)(A)(ii) defines
“property held for investment” as, inter alia,4 any interest held
4 Investment income also includes interest, dividends,
annuities, or royalties not derived in the ordinary course of a
trade or business. See secs. 163(d)(5)(A)(i), 469(e)(1).
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Last modified: May 25, 2011