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Mortgage Interest Deduction
Section 163 allows a deduction for interest paid or accrued
on certain indebtedness, including acquisition indebtedness on a
qualified residence. See sec. 163(h)(2)(D), (3)(A). The
acquisition indebtedness generally must be an obligation of the
taxpayer and not an obligation of another. See Golder v.
Commissioner, 604 F.2d 34, 36 (9th Cir. 1979), affg. T.C. Memo.
1976-150; Smith v. Commissioner, 84 T.C. 889, 897 (1985), affd.
without published opinion 805 F.2d 1073 (D.C. Cir. 1986).
The applicable regulation, however, in pertinent part
provides:
Interest paid by the taxpayer on a mortgage upon
real estate of which he is the legal or equitable
owner, even though the taxpayer is not directly liable
upon the bond or note secured by such mortgage, may be
deducted as interest on his indebtedness. * * *
Sec. 1.163-1(b), Income Tax Regs.
Our Memorandum Opinion in Golder, as affirmed by the Court
of Appeals for the Ninth Circuit, construed section 1.163-1(b),
Income Tax Regs., to permit interest deductions in situations
where the taxpayer is not personally liable on a mortgage of the
property which is used as security for a loan made to the
taxpayer. Although the taxpayer is not personally liable on the
debt, the taxpayer must pay the mortgage to avoid foreclosure.
Id. According to Golder, section 1.163-1(b), Income Tax Regs.,
recognizes the economic substance of nonrecourse borrowing and
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Last modified: May 25, 2011