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mortgage covered most (but not all) of the 1,804 acres
constituting the family farm.
At decedent's death, the outstanding balance of the Land
Bank loan was $825,068. Petitioner claimed on the estate tax
return that this entire balance was deductible from decedent's
gross estate, in part as a "claim against the estate" under
section 2053(a)(3) and in part as an "unpaid mortgage" under
section 2053(a)(4). On brief, petitioner concedes that its
original position was incorrect. Petitioner now seeks a
deduction only for an "unpaid mortgage" under section 2053(a)(4)
in the amount of $88,109. Respondent maintains that no deduction
is allowable.
Section 2053(a)(4) allows a deduction from the gross estate
for "unpaid mortgages" on property. The mortgage for the Land
Bank loan is unquestionably an unpaid mortgage, to the extent of
the $825,068 outstanding balance at decedent's death. However,
the limitations on the unpaid mortgage deduction thwart even
petitioner’s reduced claim, as explained below.
A. Value of Security Included in Decedent's Estate
Section 2053(a)(4) by its terms applies to an unpaid
mortgage on property "where the value of the decedent's interest
therein, undiminished by such mortgage * * * is included in the
value of the gross estate". We have interpreted and applied this
language to hold that where the value of the property securing
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