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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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