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extent of its basis plus the amount of such debt used to pay
certain educational or medical expenses), provided the total
amount of such debt does not exceed the fair market value of
such residence.
* * * * * * *
Personal interest
Under the Act, personal interest is not deductible.
Personal interest is any interest, other than interest
incurred or continued in connection with the conduct of a
trade or business (other than the trade or business of
performing services as an employee), * * * investment
interest, or interest taken into account of computing the
taxpayer’s income or loss from passive activities for the
year. Thus, personal interest includes, for example,
interest on a loan to purchase an automobile, interest on a
loan to purchase a life insurance policy, and credit card
interest, where such interest is not incurred or continued
in connection with the conduct of a trade or business.
Personal interest also includes interest on underpayments of
individual Federal, State or local income taxes
notwithstanding that all or a portion of the income may have
arisen in a trade or business, because such taxes are not
considered derived from the conduct of a trade or
business.60 However, personal interest does not include
interest payable on estate tax deferred under sections 6163
or 6166.
Personal interest does not include qualified residence
interest of the taxpayer, as discussed below.
_____________
55 For legislative background of the provision, see: H.R.
3838, as reported by the House Committee on Ways and Means
on December 7, 1985, sec. 402; H.Rep. 99-426, pp. 296-301;
H.R. 3838 as reported by the Senate Committee on Finance on
May 29, 1986, sec. 1421; S.Rep. 99-313, pp. 802-808; and
H.Rep. 99-841, Vol. II (September 18, 1986), pp. 151-157
(Conference Report).
60 Personal interest does not include interest on taxes,
other than income taxes, that are incurred in connection
with a trade or business. (For the rule that taxes on net
income are not attributable to a trade or business, see
Treas. Reg. sec. 1.62-1(d), relating to nondeductibility of
State income taxes in computing adjusted gross income.) In
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