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“(A) $10,000 ($20,000, in the case of a
joint return), plus
“(B) the net investment income for the
taxable year.
“In the case of a trust, the amount specified in
subparagraph (A) shall be zero.
* * * * * * *
“(3) Nonbusiness interest.--For purposes of this
subsection, the term ‘nonbusiness interest’ means any
interest allowable as a deduction under this chapter
(determined without regard to paragraph (1)); except
that such term shall not include--
“(A) any qualified residence interest, and
“(B) any interest which is allowable as a
deduction in computing adjusted gross income
and which is not attributable to a limited
business interest.
For purposes of the preceding sentence, the term
‘interest’ includes any amount allowable as a deduction
in connection with personal property used in a short
sale.[”]
The term “limited business interest” is defined (in subsec.
(d)(6)) in terms of lack of active participation in the business;
it apparently would not apply to Edward’s law practice. As to
the prior law’s deductibility of interest in computing adjusted
gross income, see infra F. (3) Pre-TRA 1986 Cases.
The Ways and Means Committee Report to accompany H.R. 3838,
H. Rept. 99-426 (1985), 1986-3 C.B. (Vol. 2) 1, states, in
pertinent part, as follows:
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