Saffet and Ana Uslu - Page 8

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          although the taxpayer is not directly liable on the debt, since             
          the mortgage creditor may look only to the mortgaged property for           
          payment, and the taxpayer stands to lose the property if the                
          mortgage is not paid, the taxpayer must pay the mortgage to avoid           
          foreclosure.  Thus, section 1.163-1(b), Income Tax Regs.,                   
          recognizes the economic substance of nonrecourse borrowing and              
          allows an interest deduction to a taxpayer, who, in the                     
          situations contemplated in that regulation, is not directly                 
          liable on the mortgage indebtedness.                                        
               Respondent contends that petitioners may not deduct the                
          subject mortgage interest payments because they had no legal                
          obligation to Southern California Federal with respect to such              
          mortgage.  Respondent cites Golder v. Commissioner, supra, for              
          the proposition that section 1.163-1(b), Income Tax Regs., does             
          not create an exception to the rule of section 163(a) that                  
          interest is deductible only with respect to the indebtedness of             
          the taxpayer.  In other words, respondent contends that section             
          1.163-1(b), Income Tax Regs., applies only to situations in which           
          the taxpayer has procured nonrecourse debt, and does not apply to           
          a situation, such as in the instant case, where a person other              
          than the taxpayer is legally obligated on a mortgage.  Respondent           
          also cites Loria v. Commissioner, T.C. Memo. 1995-420, and Song             
          v. Commissioner, T.C. Memo. 1995-446, in which this Court held              
          that the taxpayers could not deduct mortgage interest payments              

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