## Facts

- Virginia Cramer, an individual taxpayer, claimed itemized deductions for Detroit, Michigan real property taxes she paid during 1964–1966.
- Auburn Street property: Cramer sold her former residence in 1963 under an installment land contract, retained legal title, and the buyer agreed to pay property taxes; the buyer defaulted, Cramer paid 1964–1965 taxes to prevent tax-sale consequences, foreclosed, regained possession on February 18, 1966, and later sold the property in 1966 after paying 1966 taxes.
- Atkinson Street property: legal title remained in Cramer’s mother during 1965–1966; because the mother was frequently hospitalized, Cramer managed the property and paid the 1965–1966 property taxes with her own funds; title transferred to Cramer in 1967.
- Clearview Street property: Cramer owned and lived in this residence and paid its property taxes for 1964–1966.
- The IRS disallowed deductions for taxes Cramer paid on (1) the Atkinson property and (2) the Auburn property during the period the buyer possessed it under the land contract, and disputed the extent of any 1966 Auburn deduction.
- Cramer petitioned the U.S. Tax Court for redetermination of deficiencies for 1964–1966.

## Issues

1. Whether Cramer could deduct, under I.R.C. § 164, property taxes she paid on the Atkinson property while legal title remained in her mother.
2. Whether Cramer could deduct property taxes she paid on the Auburn property while she retained legal title but the buyer possessed the property and had agreed by contract to pay the taxes.
3. Whether Cramer could deduct the entire 1966 Auburn property tax or only an apportioned amount based on her period of ownership/beneficial interest during that year.

## Decision

- The Tax Court disallowed deductions for taxes Cramer paid on the Atkinson property because the taxes were imposed on her mother as the titled owner.
- The Tax Court allowed deductions for Auburn property taxes paid in years when Michigan law imposed the tax on Cramer as record owner, despite the buyer’s contractual promise to pay.
- For 1966, the Tax Court limited Cramer’s Auburn deduction to the portion properly allocable to her period of ownership/beneficial interest during that year and apportioned the annual tax accordingly.
- The court sustained the Commissioner in part and granted relief to Cramer in part, with deficiencies adjusted consistent with these rulings.

## Legal Principles

- Real property taxes are deductible under I.R.C. § 164 only by the person on whom the tax is imposed under applicable state law.
- A taxpayer’s voluntary payment of another person’s real property tax liability is not deductible by the payer under § 164.
- A private contractual allocation of the economic burden of property taxes does not shift the legal incidence of the tax for § 164 purposes.
- When an annual real property tax relates to periods involving changes in ownership/beneficial interest during the year, the deductible amount may be limited to the portion properly allocable to the taxpayer’s period of ownership for federal income tax purposes.

## Conclusion

The Tax Court applied a state-law incidence rule for § 164: Cramer could not deduct taxes paid on property titled to her mother, could deduct taxes imposed on her as record owner of the installment-sale property despite the buyer’s contractual duty to pay, and for the year of repossession and resale was limited to an apportioned deduction reflecting her period of ownership.


Cramer v. Commissioner, 55 T.C. 1125 (1971)