Robert Bryan Hudnall and Victoria A. - Page 2




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          petitioners are entitled to take a deduction for real estate                 
          taxes; and (3) whether petitioners are entitled to deduct                    
          mortgage interest.                                                           
               Some of the facts have been stipulated and are so found.                
          The stipulation of facts is incorporated herein by this                      
          reference.  At the time the petition was filed, petitioners                  
          resided in Baltimore, Maryland.                                              
                                      Background                                       
               Immediately before moving to Baltimore, Maryland,                       
          petitioners resided in Shelby County, Tennessee.  Petitioners                
          owned two quarter horses and a pony, which they paid to have                 
          boarded at local stables.  Their daughters were experienced                  
          riders with trophies earned from competition.  Petitioners also              
          claim to jointly own a house at 4429 Kerwin Drive in Shelby                  
          County, Tennessee, with Mrs. Hudnall's mother, who is also their             
          tax adviser.                                                                 
               Sometime shortly before 1993, petitioners moved to                      
          Baltimore, Maryland.  They rented a dilapidated farm at 315 East             
          Jarrettsville Road, where, after renovation, they lived and kept             
          their horses without paying others to care for them.  The 68-acre            
          farm has since been subdivided and developed into town houses.               
          Petitioners state that, initially, they were not aware of the                
          owner's plans to subdivide the property, though they admit it was            
          common knowledge to at least some of the neighbors.  In 1994,                





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