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obligor. The risk of a decline in value rested on John, not
petitioners.
The rewards of ownership were also transferred to John by
the Exchange Agreement. Any increase in value thereafter was
his. Even though petitioners did not transfer legal title to
John when they signed the Exchange Agreement, they agreed to
transfer title at John's request.
The parties also behaved as if John owned the property after
the Exchange Agreement. John used the property as collateral on
one of his personal obligations and assigned the rents to
guarantee repayment of this loan. Moreover, when ownership of
the property became confused, he fought for and got title
transferred back into his name rather than into petitioners'.
We agree with respondent that petitioners are not entitled
to deduct depreciation from Chancery Court for 1988. All the
credible evidence indicates that petitioners transferred the
benefits and burdens of ownership to John on August 25, 1987,
when they signed the Exchange Agreement.
2. Sawgrass
John also involved petitioners in the purchase and resale
of 7933 Sawgrass Circle, Citrus Heights, California (Sawgrass).
Petitioners purchased the house from Sharon Benvenuti, obtaining
a grant deed from her on March 28, 1988, but not recording it
until August 16, 1988. The house stood empty during petitioners'
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