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Petitioners contend that for purposes of determining the
“net investment income” for each taxable year, “net gain from the
disposition of property held for investment” includes only their
items of capital gain.6 Specifically, petitioners argue that
their capital losses and capital loss carryovers are not included
in the calculation of “net gain from the disposition of property
held for investment”.
Discussion7
The parties do not dispute petitioners’ entitlement to an
investment interest expense deduction under section 163(a), but
the parties do dispute the calculation of that deduction. The
main issue of contention between the parties is whether the term
“investment income”, as defined by section 163(d)(4)(B), includes
petitioners’ capital losses and capital loss carryovers for
purposes of calculating the limitation on the investment interest
expense deduction.
In resolving this issue, we rely on section 163(d) and its
underlying framework and legislative history.
6 Petitioners contend that they failed to properly include
their capital gains for purposes of calculating the “net gain
from the disposition of property held for investment” on their
Forms 4952 for each taxable year at issue.
7 We decide the issue in this case without regard to the
burden of proof. See sec. 7491; Rule 142(a); Higbee v.
Commissioner, 116 T.C. 438 (2001).
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