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investment interest expense the taxpayer is allowed to deduct for
the taxable year. Furthermore, section 163(d)(2) allows the
taxpayer to carryforward any investment interest expense
disallowed under the general limitation for the taxable year and
deduct it as investment interest expense paid or accrued in the
succeeding taxable year to the extent that the taxpayer has net
investment income in that year.
Section 163(d)(4)(A) defines net investment income as the
excess of investment income over investment expense. Section
163(d)(4)(B),9 in turn, defines investment income as follows:
(B) Investment Income.--The term “investment
income” means the sum of–-
(i) gross income from property held for
investment (other than any gain taken into
account under clause (ii)(I)),
(ii) the excess (if any) of–-
(I) the net gain attributable
to the disposition of property held
for investment, over
(II) the net capital gain
determined by only taking into
account gains and losses from
dispositions of property held for
investment, plus
(iii) so much of the net capital gain
referred to in clause (ii)(II) (or, if
lesser, the net gain referred to in clause
9 The Omnibus Budget Reconciliation Act of 1993, Pub. L.
103-66, sec. 13206(d)(1), 107 Stat. 467, amended sec.
163(d)(4)(B) effective for taxable years beginning after Dec. 31,
1992.
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