Andrew E. Blanche, Jr., and Cynthia D. Blanche - Page 14

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               Not until August 1992 did petitioners begin making regular             
          mortgage payments directly to Lomas Mortgage in connection with             
          the Foxbriar property.  From August through December 1992,                  
          petitioners actually paid mortgage interest and real property               
          taxes on the Foxbriar property.  Respondent allowed petitioners             
          the corresponding deductions for these payments.                            
               The Court deems it prudent to also examine petitioners'                
          ownership interest, if any, in the Foxbriar property during the             
          years at issue.  State law determines the nature of property                
          rights, and Federal law determines the appropriate tax treatment            
          of those rights.  See United States v. National Bank of Commerce,           
          472 U.S. 713, 722 (1985); United States v. Rodgers, 461 U.S. 677,           
          683 (1983); Aquilino v. United States, 363 U.S. 509, 513 (1960).            
          Thus, whatever rights or interests, if any, petitioners held in             
          the Foxbriar property during the years at issue must be                     
          determined by applying applicable Texas law.  It is well settled            
          under Texas law that legal title to real property does not pass             
          to a purchaser under a contract of sale until the deed to the               
          property is delivered.  Leeson v. City of Houston, 243 S.W. 485,            
          488 (Tex. Commn. App. 1922, judgment adopted).  The record                  
          reflects that no deed to the Foxbriar property was delivered to             
          petitioners prior to August 1992.  Thus, the Court finds that               
          petitioners had no legal title to the Foxbriar property prior to            
          August 1992.                                                                

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