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Petitioner wife’s brother, Son Dang, agreed to obtain on behalf
of petitioners a mortgage in the amount of $323,900 on the
Milpitas property.
On August 3, 1994, petitioners paid out of their own funds
$137,518.62 as a downpayment on the Milpitas property.
Petitioners made the mortgage payments on the Milpitas property.
They also chose, approved, and paid for home improvements, such
as carpeting. After construction was completed, they lived at
the Milpitas property.
Son Dang never lived at the Milpitas property. On December
3, 1994, Son Dang executed a grant deed for the Milpitas property
in favor of petitioner husband.
On their 1994 joint Federal income tax return, petitioners
deducted $11,738 for mortgage interest and $3,570 for property
taxes paid on the Milpitas property. In the notice of
deficiency, respondent disallowed the deductions in their
entirety on the ground that petitioners did not own the Milpitas
property.
Discussion
A. Mortgage Interest Deduction
In general, section 163 allows a deduction for interest paid
or accrued on certain indebtedness, including acquisition
indebtedness on a qualified residence. The acquisition
indebtedness generally must be an obligation of the taxpayer and
not an obligation of another. See Golder v. Commissioner, 604
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