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In Golder v. Commissioner, supra, the Court of Appeals for the
Ninth Circuit, in affirming the Tax Court, stated that section
1.163-1(b), Income Tax Regs., does not create an exception to the
rule of section 163(a) that interest is deductible only with
respect to the indebtedness of the taxpayer but, rather, simply
recognizes the economic substance of nonrecourse borrowing.
Additionally, as required by section 1.163-1(b), Income Tax
Regs., the taxpayer must be the "legal or equitable owner" of the
property. Where the taxpayer has not established legal,
equitable, or beneficial ownership of mortgaged property, the
courts generally have disallowed the taxpayer a deduction for the
mortgage interest. See Bonkowski v. Commissioner, T.C. Memo.
1970-340, affd. 458 F.2d 709 (7th Cir. 1972); Song v.
Commissioner, T.C. Memo. 1995-446; Estate of Broadhead v.
Commissioner, T.C. Memo. 1966-26, affd. 391 F.2d 841, 848 (5th
Cir. 1968).
This record reflects that petitioners had no legal
obligation to Lomas Mortgage with respect to the Foxbriar
property until August 1992.9 Until such time, only the Hewitts
9 In the notice of deficiency, respondent allowed
petitioners a deduction for qualified residence interest paid by
petitioners in connection with the Foxbriar property from August
through December 1992. However, since the amount of such allowed
interest deduction, coupled with the other allowed itemized
deductions for 1992, failed to exceed the standard deduction,
petitioners were allowed the standard deduction for that year.
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