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Petitioners deducted interest on the South Coast Thrift loan
on their Schedules C for 1990 and 1991 in the amounts of $116,121
and $43,276, respectively. Petitioners appear to contend that
the South Coast Thrift loan was a general business loan obtained
to start a new business and was not a construction loan governed
by the interest capitalization rules of section 263A(f). The
record in this case suggests otherwise. Regardless of which
party bears the burden of proof with respect to section 263A, we
have found as a fact that the South Coast Thrift loan was a
construction loan taken out by petitioners to finance the
retrofitting and renovation of their 5401-9 S. Broadway property
and that the interest deducted by petitioners for 1990 and 1991
was attributable to that loan.15 Under section 263A(f), because
the interest attributable to the South Coast Thrift loan was paid
to prepare the 5401-9 S. Broadway property to be placed in
service in a trade or business or in an activity for profit,
except to the extent allowed by respondent’s concession,16 the
interest must be capitalized. Sec. 263A(f)(1).
(2) Other Schedule C Expenses
On Schedule C of their 1990 tax return, petitioners deducted
15Petitioners did not deduct any interest attributable to
the South Coast Thrift loan on their Schedules C or E for 1992
and 1993.
16See supra note 2. Respondent also conceded that 6 percent
of the building was available for rent and placed in service as
rental property during 1989 and 1990.
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