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income tax benefits of mortgage interest payments do not flow
through to petitioners from the Hewitts. The only taxpayer
entitled to a mortgage interest deduction on the Foxbriar
property for 1991 is the taxpayer who actually paid the interest
as the debtor to Lomas Mortgage. Petitioners were not the
debtors during 1991 and did not pay the interest during that
year. A similar analysis applies to the deduction of real estate
taxes for 1991. See discussion, infra.
For 1992, petitioners claimed a deduction for all of the
mortgage interest paid on the Foxbriar property during that year.
However, through at least April 1992, petitioners paid only
$1,000 in monthly rent to Mrs. Hewitt. As discussed previously,
petitioners are not entitled to mortgage interest deductions (or
real property tax deductions) in connection with these lease
payments because they did not actually pay any mortgage interest
(or real property taxes) through at least May 1992.
Sometime after May 1992, petitioners paid $7,269.73 to Lomas
Mortgage to cure the mortgage default. However, if a taxpayer
pays mortgage interest that accrued prior to the date upon which
the taxpayer becomes the legal or equitable owner of the subject
property, that amount is not currently deductible. See Koehler
v. Commissioner, T.C. Memo. 1978-381. Moreover, it is notable
that the District Court awarded petitioners restitution for
amounts paid to cure the mortgage default in 1992.
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