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principal balance of $1,341,352 on petitioner's mortgage.2
On July 19, 1999, petitioner received a discharge, and his
bankruptcy was closed by final decree. No Federal income tax
returns were ever filed for petitioner’s bankruptcy estate for
1995.
b. Bankruptcy Fees
Petitioner reported a nonpassive loss in the amount of
$46,462 on Schedule E, Supplemental Income and Loss, of his 1995
Federal income tax return attributable to his business interest
in MACAT Automotive Group (MACAT). MACAT was an S corporation
owned by petitioner at some time prior to 1995 that operated an
automobile dealership. MACAT ceased doing business in 1992. The
last Federal income tax return filed for MACAT was for its 1992
taxable year. The figure petitioner deducted as an MACAT loss
represented legal, accounting, and U.S. trustee's fees
(bankruptcy fees) petitioner claims he paid in the course of his
individual bankruptcy proceedings in 1995.
OPINION
Issue 1. Mortgage Interest Deduction
a. Entity Entitled to Deduction
Whether petitioner may deduct the interest paid in the
foreclosure of his residence requires that we first determine
2The debt at issue in this case was secured under a deed of
trust. However, the terms “mortgage” and “deed of trust” will be
used interchangeably herein as they were in the testimony at the
trial and in the briefs.
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