George R. and Barbara H. Burrus - Page 19

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               the holding of the land (that is, deductions other than                
               those directly attributable to the holding of the land                 
               such as interest on a mortgage secured by the land,                    
               annual property taxes attributable to the land and                     
               improvements, and depreciation of the improvements to                  
               the land).  [Id.]                                                      
               Applying the foregoing regulation in this case, we conclude            
          that the “income derived from farming” includes all income                  
          reported by petitioners on their Schedules F except the amount              
          listed on the “Other income” line, which the testimony of both              
          Dr. and Mrs. Burrus confirms is income petitioners received from            
          renting three houses located on the Maple Row land.  Such income            
          is more appropriately allocable to the holding of land.  As for             
          deductions “directly attributable to the holding of the land”               
          that should be excluded from farming deductions, we conclude,               
          based in part on the parties’ agreement,8 that the amounts                  
          reported on the Schedules F for mortgage interest, taxes, and               

               8 Petitioners offered into evidence a table indicating, and            
          further argued on brief, that the Schedule F, Profit or Loss From           
          Farming, entries reported for mortgage interest, taxes,                     
          depreciation, and conservation expenses are properly allocable to           
          the holding of land, while respondent concedes on brief that all            
          of the foregoing items except conservation expenses are so                  
          allocable.  Given respondent’s concession regarding depreciation,           
          we do not consider whether the record supports any allocation of            
          some portion of the depreciation (e.g., for equipment) to the               
          farming activity.                                                           
               Respondent further concedes on brief that the expenses                 
          treated as directly attributable to the holding of the land for             
          purposes of sec. 1.183-1(d)(1), Income Tax Regs., are deductible            
          by petitioners, subject, in the case of the mortgage interest, to           
          the restrictions of sec. 163(d).                                            





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