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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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