## Facts

- In 1985, Gregg Loria purchased a residence at 22314 Runnymede, Canoga Park, California, largely because his brother, Bruce D. Loria, did not have sufficient credit to buy the home in his own name.
- Gregg held sole legal title to the property and was the only person obligated on the mortgage loan from Freedom Federal Savings & Loan (Freedom Federal).
- During 1989, Bruce lived at the Runnymede property.
- During 1989, Bruce made at least $13,270.02 in payments to Freedom Federal on the mortgage loan that was in Gregg’s name.
- For 1989, Freedom Federal issued Form 1098 to Gregg (not Bruce) reporting $13,575.40 of mortgage interest paid on the loan.
- On his 1989 federal income tax return, Bruce claimed itemized deductions for mortgage interest, mortgage points, and real property taxes related to the Runnymede property.
- The Commissioner issued a notice of deficiency disallowing those deductions on the ground that Bruce was neither the legal owner nor the borrower on the mortgage.
- Bruce petitioned the United States Tax Court, arguing he should be allowed the deductions because he lived in the home and paid the expenses.

## Issues

1. Whether Bruce could deduct mortgage interest and mortgage points for 1989 under I.R.C. § 163 where his brother held title and was the sole obligor on the Freedom Federal mortgage, but Bruce lived in the property and made mortgage payments.
2. Whether Bruce could deduct real property taxes for 1989 under I.R.C. § 164 for taxes paid with respect to the property titled in his brother’s name.

## Decision

- The court sustained the Commissioner’s disallowance of the claimed deductions for mortgage interest and mortgage points.
- The court sustained the Commissioner’s disallowance of the claimed deduction for real property taxes.
- The court entered decision for the Commissioner.

## Legal Principles

- A deduction is a matter of legislative grace, and the taxpayer bears the burden of proving entitlement to the deduction claimed.
- Interest is generally deductible under I.R.C. § 163(a) only when it is interest paid on the taxpayer’s own indebtedness; paying interest on another person’s debt is not deductible merely because the payer made the payment.
- Under Treas. Reg. § 1.163-1(b), a taxpayer who is a legal or equitable owner of mortgaged property may be allowed an interest deduction even if the taxpayer is not personally liable on the note, but the taxpayer must prove legal or equitable ownership.
- “Equitable ownership” depends on whether, in substance, the taxpayer bears the benefits and burdens of ownership (such as the right to possess and control the property, responsibility for taxes and insurance, risk of loss, and the chance for gain), evaluated from the facts and any enforceable agreements.
- State and local real property taxes are generally deductible under I.R.C. § 164 only by the person on whom the tax is imposed; payment of another person’s property tax does not by itself make the tax deductible by the payer.
- Occupying a residence and making some or even all of the mortgage payments, without credible proof that the taxpayer obtained the benefits and burdens of ownership, is not enough to establish equitable ownership for purposes of deducting mortgage interest, points, or property taxes.

## Conclusion

In *Loria v. Commissioner*, the Tax Court held that Bruce Loria could not deduct mortgage interest, mortgage points, or real property taxes for a home titled in his brother Gregg’s name because Bruce did not prove that he was the legal or equitable owner of the property or otherwise the proper party to claim those deductions; Bruce’s residence in the home and his payments toward Gregg’s mortgage and related expenses were treated as payments on another person’s obligations, so the Commissioner’s disallowance was sustained.


Loria v. Commissioner, T.C. Memo 1995-420; 70 T.C.M. (CCH) 553 (1995)