## Facts

- Lena Steinert, a Massachusetts taxpayer, filed federal income tax returns for 1954–1956.
- Her late husband had owned two Massachusetts residential properties that, after his death and related transactions, were held in fee by a bank (as remainder holder).
- Steinert executed a release of marital property rights in connection with conveyances and, in return, received an agreement granting her lifetime, rent-free possession and enjoyment of each property.
- The agreement required that any disposition by the bank be subject to Steinert’s lifetime rights and granted her “free and uninterrupted” use during her life.
- Steinert agreed to pay all “carrying charges,” including local real estate taxes and other property expenses; the agreement was conditioned on not being recorded.
- For 1954–1956, Steinert paid local real estate taxes assessed on the properties and deducted them on her returns.
- She also claimed a casualty loss deduction for hurricane damage to one property.
- The Commissioner disallowed both deductions on the ground that Steinert was not the record owner and asserted deficiencies; Steinert petitioned the Tax Court.

## Issues

1. Whether a taxpayer holding a life estate (without legal title) may deduct real estate taxes assessed to the fee owner but paid by the life tenant pursuant to a binding obligation.
2. Whether a life tenant may deduct a casualty loss for hurricane damage to the underlying property, and if so, how the loss should be measured.

## Decision

- The Tax Court held Steinert was a life tenant with a present possessory interest, while the bank held the remainder.
- The court allowed Steinert to deduct the real estate taxes she paid because she bore the obligation and economic burden of the taxes as life tenant.
- The court allowed a casualty loss deduction for hurricane damage, limited to the diminution in value of Steinert’s life estate interest rather than the full fee interest.
- The Commissioner’s disallowance of the deductions was rejected to the extent inconsistent with these holdings.

## Legal Principles

- A life estate is a legally cognizable property interest that can support federal income tax deductions tied to ownership burdens and losses.
- Real estate taxes may be deductible by the taxpayer who, in substance, is burdened with and actually pays the taxes, even if the assessment and legal title are in another’s name.
- Casualty loss deductions may be claimed by a holder of a divided property interest, but the deductible amount must correspond to the loss sustained in that taxpayer’s specific interest (e.g., the life estate).
- Record title is not dispositive when a taxpayer has enforceable possessory rights and bears the economic burdens associated with the property.

## Conclusion

A taxpayer with a life estate who is obligated to pay and does pay real estate taxes may deduct them, and a life tenant may claim a casualty loss from hurricane damage measured by the decrease in value of the life estate interest.


Steinert v. Commissioner, 33 T.C. 447 (1959)