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F.2d 34, 35 (9th Cir. 1979), affg. T.C. Memo. 1976-150. However,
the applicable regulations provide in pertinent part:
Interest paid by the taxpayer on a mortgage upon
real estate of which he is the legal or equitable
owner, even though the taxpayer is not directly
liable upon the bond or note secured by such
mortgage, may be deducted as interest on his
indebtedness. [Sec. 1.163-1(b), Income Tax Regs.]
In a case with analogous facts, Uslu v. Commissioner, T.C.
Memo. 1997-551, the taxpayers could not qualify for a home
mortgage loan because of a recent bankruptcy. In Uslu, the
taxpayer-husband and his brother agreed that the brother would
obtain the loan for the property and the taxpayers would pay the
mortgage and all other expenses for maintenance and improvements.
This Court held that although the taxpayers did not hold legal
title to the property, they were the equitable owners and were
entitled to deduct mortgage interest paid by them with respect to
the property.
Similarly, in the instant case, although petitioners were
not the legal owners of the Milpitas property before December 3,
1994, they consistently treated the Milpitas property as if they
were the owners, paying the downpayment, mortgage payments, and
property taxes with respect to the property, as well as paying
for improvements to the property. Based on all the evidence, we
infer that those actions were pursuant to an agreement with Son
Dang, who took title to the property and obtained a mortgage only
as an accommodation to petitioners, who could not qualify for a
loan. A few months later, Son Dang transferred the title to
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