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right to receive the 12 future lottery payments does not
constitute a capital asset within the meaning of section 1221,
and (2) the $400,000 received by petitioners from Woodbridge in
exchange for that right constitutes ordinary income. Accord
United States v. Maginnis, 89 AFTR 2d 2002-3028, 2002-2 USTC par.
50,494 (D. Or. 2002).
II. Deductibility of the $64,000 Interest Payment
A. Introduction
During the hearing, Peter agreed that $100,000 of the
proceeds of the loans was used to construct or improve
petitioners’ personal residence, such residence was not used as
collateral for the loans, and no mortgage was placed on the
property in connection with the loans. In light of those
stipulated facts, respondent argues that, with respect to
individuals, section 163(h)(1) denies any deduction for “personal
interest”, and that there is no evidence to indicate that
petitioners’ interest payments fall within any of the exceptions
to the definition of “personal interest” set forth in section
163(h)(2).5
5 Sec. 163(h)(2) defines “personal interest”, in pertinent
part, as follows:
(2) Personal interest.--For purposes of this
subsection, the term “personal interest” means any
interest allowable as a deduction under this chapter
other than--
(continued...)
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