Investment Interest Expense

[Karen Lee]

Married couple purchased 100% stock of c-corp. Note is held by previous owner.

This IS Investment Interest Expense? They have rentals but maintain the rentals themselves.

They are employees of the acquired c-corp.

I cannot figure out how to deduct the interest from the note.

There is a separate note for land and building that was bought that the C-Corp is housed.

It is only the stock note that I can't figure out where to deduct. Rentals are not Passive the C-Corp is not Passive. Sch A in ATX will not allow the deduction there isn't enough Passive income for that much Investment Interest expense.

Ideas??

Thanks

Karen

[TAXMAN]

I too have one where stockholder borrowed $ and bought out one of the stockholders stock. Investment interest as I understand is limited to investment income unless you have some cap gain to recharicaterize then pull some that way. Just my thoughts. However could the nondeductible interest be use as a stock basis adjustment if tp ever sold stock and not used up the interest?

[Karen Lee]

That makes sense.

Thanks