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petitioner husband. We conclude that petitioners held the
benefits and burdens of ownership of the Milpitas property and
have established equitable ownership of it during the period in
question during 1994. Accordingly, we hold that petitioners are
entitled to deduct the $11,738 home mortgage interest paid by
them with respect to the Milpitas property during 1994.
B. Property Taxes
Section 164 allows a deduction for certain taxes, including
State and local real property taxes. In general, taxes are
deductible only by the person upon whom they are imposed. See
sec. 1.164-1(a), Income Tax Regs. However, the person owning the
equitable or beneficial interest in real property and paying the
taxes assessed against the property to protect that interest may
deduct the taxes paid even though legal title is recorded in the
name of another person. See Estate of Movius v. Commissioner, 22
T.C. 391 (1954); Horsford v. Commissioner, 2 T.C. 826 (1943);
Casey v. Commissioner, T.C. Memo. 1965-282.
We have concluded that petitioners were equitable owners of
the Milpitas property during 1994; accordingly, we hold that they
are entitled to deduct property taxes they paid on the property
that year.
For the first time on reply brief, respondent argues that
petitioners have not substantiated that they paid the property
taxes on the Milpitas property. Respondent has failed to raise
this issue in the notice of deficiency, at trial, or on opening
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