- 9 -
that year. Consequently, petitioners were allowed the standard
deduction for 1992.
Petitioners did not claim a casualty loss deduction on their
1991 Federal income tax return. However, in their petition,
petitioners alleged they were entitled to a casualty loss for
1991 of "$19,000, subject to limitations" in connection with the
Foxbriar property.
In an amended answer, respondent affirmatively alleged that
petitioners were collaterally estopped from claiming deductions
relating to or attributable to the Foxbriar property because the
District Court ruled that petitioners had neither legal nor
equitable ownership of the Foxbriar property during the years at
issue. However, petitioners were effectively denied review of
the District Court's judgment because it became moot on appeal,
and their appeal was dismissed for that reason. See supra note
6. This Court, therefore, believes it more prudent to resolve
the issues in this case on their merits rather than on the basis
of collateral estoppel.
The first issue for decision is whether, for the years at
issue, petitioners are entitled to deductions for qualified
residence interest and real property taxes, in connection with
the Foxbriar property, in excess of that allowed by respondent.
Section 163(a) provides that there shall be allowed as a
deduction all interest paid or accrued within the taxable year on
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