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shelter noninvestment income with nontaxable income (e.g.,
capital gains offset by the loss carryover). This double tax
benefit is clearly not permitted by section 163(d).
D. Conclusion
We hold that investment income, as defined by section
163(d)(4)(B), requires inclusion of petitioners’ loss carryover
for purposes of calculating the section 163(d)(1) limitation on
the investment interest expense deduction. We hold further that
petitioners’ investment interest expense deduction is limited to
$5,044. In view of the foregoing, we sustain respondent’s
determination on the disputed issue.
We have considered all of the other arguments made by
petitioners and, to the extent that we have not specifically
addressed them, we find them to be without merit.
Reviewed and adopted as the report of the Small Tax Case
Division.
To reflect the foregoing,
Decision will be entered
for respondent.
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