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Section 163(d)(4)(A) defines net investment income as the
excess of investment income over investment expense. Section
163(d)(4)(B),5 in turn, defines investment income as follows:
(B) Investment Income.--The term “investment
income” means the sum of–-
(i) gross income from property held for
investment (other than any gain taken into
account under clause (ii)(I)),
(ii) the excess (if any) of–-
(I) the net gain attributable
to the disposition of property held
for investment, over
(II) the net capital gain
determined by only taking into
account gains and losses from
dispositions of property held for
investment, plus
(iii) so much of the net capital gain
referred to in clause (ii)(II) (or, if
lesser, the net gain referred to in clause
(ii)(I)) as the taxpayer elects to take into
account under the clause. [Emphasis added.]
At issue in the instant case is the calculation of section
163(d)(4)(B)(ii). To that end, the meaning of the terms “net
gain” and “net capital gain” are integral to our analysis.
2. Net Gain
Neither section 163, the regulations, the case law, nor the
statute’s legislative history defines the term “net gain”. If a
5The Omnibus Budget Reconciliation Act of 1993, Pub. L. 103-
66, sec. 13206(d)(1), 107 Stat. 312, 467, amended sec.
163(d)(4)(B) effective for taxable years beginning after Dec. 31,
1992.
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Last modified: May 25, 2011