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double tax benefit. Under petitioners’ approach, capital gains
would be offset by capital losses and capital loss carryovers and
not subjected to taxation. Then, those same capital gains that
escaped taxation would be used to increase investment income and,
simultaneously, the investment interest expense deduction. This
double tax benefit is clearly not permitted by section 163(d).
We now turn to petitioner’s investment interest expense
deductions for the taxable years at issue. Based on the amounts
reported by petitioners on their Schedules D, petitioners had a
total net capital loss in each taxable year at issue. It
follows, then, that petitioners had zero “net gain” in 1999,
2000, and 2001 for purposes of section 163(d)(4)(B)(ii)(I).
Therefore, petitioners have net investment income and allowable
investment interest expense deductions for the taxable years at
issue as follows:
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