Maurice E. Hodgkins and Barbara J. Hodgkins - Page 10

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          evidence indicates that John paid it.  He was contractually                 
          obligated to do so and, furthermore, he states that he paid the             
          mortgage interest in his letter to Sid asking for the return of             
          the property.  Consequently, petitioners are not entitled to                
          deduct $11,369 of mortgage interest on their 1988 return.                   
               A taxpayer with bare legal title to property, but no capital           
          investment or economic interest in it, cannot claim depreciation.           
          Estate of Franklin v. Commissioner, 544 F.2d 1045 (9th Cir. 1976)           
          affg. 64 T.C. 752 (1975); Helvering v. F&R Lazarus & Co., 308               
          U.S. 252 (1939).  The taxpayer entitled to the depreciation                 
          deduction is the one who suffers the economic loss of his                   
          investment by virtue of the wear and tear or exhaustion of the              
          property--the one who has the economic benefits and burdens of              
          ownership.  Frank Lyon Co. v. United States, 435 U.S. 561 (1978);           
          Leahy v. Commissioner, 87 T.C. 56 (1986).                                   
               The Exchange Agreement between petitioners and John                    
          transferred the benefits and burdens of ownership to John.                  
          Petitioners received the full fair market value for the property            
          from John.  He agreed to pay back taxes, forgave a $9,340 debt              
          that petitioners owed him, and assumed the mortgage.  True,                 
          petitioners remained liable on the Jack Rice mortgage, but John             
          promised them that he would repay it.  Only if John failed would            
          petitioners be forced to pay.  Hence, petitioners' position                 
          became tantamount to that of a guarantor rather than primary                




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