                    T.C. Summary Opinion 2011-83



                        UNITED STATES TAX COURT



                JULIE ANN WHEELER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 29320-09S.                  Filed July 6, 2011.



     Julie Ann Wheeler, pro se.

     David M. McCallum, for respondent.



     RUWE, Judge:     This case was heard pursuant to the provisions

of section 74631 of the Internal Revenue Code in effect when the

petition was filed.    Pursuant to section 7463(b), the decision to

be entered is not reviewable by any other court, and this opinion

shall not be treated as precedent for any other case.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
                               - 2 -

     Respondent determined a $2,600 deficiency in petitioner’s

2007 Federal income tax on the basis of respondent’s partial

disallowance of petitioner’s claimed itemized deduction for home

mortgage interest paid during the taxable year.   The issue for

decision is whether petitioner is entitled to deduct home

mortgage interest in an amount greater than $5,974 for the year

in issue.

                           Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     At the time the petition was filed, petitioner resided in

North Carolina.

     Beginning in 2003 and continuing throughout the year at

issue petitioner lived with her boyfriend, Adam Beeman, in a home

in Worcester, Massachusetts.   Mr. Beeman purchased the home in

his individual capacity in 2002 and, until June 2007, was solely

liable for the mortgage on the property.

     In early February 2003 petitioner moved into the home, and

she and Mr. Beeman agreed that petitioner would pay rent in an

amount equal to one-half of the monthly mortgage payment.

Petitioner paid rent directly to Mr. Beeman and never submitted

payment to the mortgage lender directly.
                               - 3 -

     During 2004 Mr. Beeman returned to school after deciding to

leave his job.   At that time petitioner and Mr. Beeman agreed

that petitioner would assume more responsibility for payment of

the mortgage and the couple’s remaining bills until Mr. Beeman

returned to work.   In October 2006 petitioner and Mr. Beeman had

a child together, with whom they shared their home.   At that time

the couple decided that Mr. Beeman would become a stay-at-home

parent rather than return to the workforce.   As a result of their

decision, until June 2007 petitioner continued to be the primary

provider for payment of the family’s expenses, including the

mortgage.   Before June 2007 any amounts that petitioner

contributed to the mortgage payments were paid directly to Mr.

Beeman, who then paid the mortgage lender.

     When petitioner moved into the home, she and Mr. Beeman had

discussions regarding their plans to renovate the property.

Petitioner and Mr. Beeman made substantial upgrades to the home

throughout the time that they lived there.    The renovations began

shortly after petitioner moved in and continued through 2007.

Some of the more substantial improvements were the installation

of wood flooring and a complete remodel of two rooms during early

2007.   Petitioner paid for and performed part of the renovation

work conducted on the home.

     From 2003 to 2007 petitioner thought it was best that she

not be “legally attached on the mortgage”, because she and Mr.
                                 - 4 -

Beeman were not married.   Before 2007 petitioner considered all

amounts she contributed toward the mortgage to be “rent”.

However, at some point during 2007 petitioner changed her mind

regarding ownership of the home and decided that it would be

prudent for her to become an owner.      Petitioner was motivated by

her concern that she might take responsibility for payment of Mr.

Beeman’s obligations and be left without any recourse if the

couple were to “split up” or if the home were sold.     Petitioner

and Mr. Beeman agreed that petitioner should have property rights

in the home because of her contributions toward the mortgage

payment, the couple’s other expenses, and the improvements to the

property.   The informal agreement between petitioner and Mr.

Beeman was made orally and never reduced to a writing.     The exact

date at which this agreement was reached is unclear, although it

necessarily occurred at some point before June 13, 2007, the date

on which petitioner’s name was added to the mortgage and placed

on the deed to the home.

     Petitioner timely filed a Form 1040, U.S. Individual

Income Tax Return, for the taxable year 2007 with the Internal

Revenue Service.   On October 13, 2009, respondent issued

petitioner a notice of deficiency for the taxable year 2007 in

which he determined a $2,600 deficiency in petitioner’s Federal

income tax.   On her return petitioner claimed a home mortgage

interest deduction of $16,358.    Respondent, on the basis of
                                - 5 -

third-party payor data, allowed petitioner a deduction of only

$5,974, which appears to be the amount of interest paid after

petitioner acquired title and became liable on the mortgage.      The

issue for decision is whether petitioner is entitled to deduct

home mortgage interest in an amount greater than $5,974 for the

year in issue.

                             Discussion

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving entitlement to the

deductions claimed.    Rule 142(a); INDOPCO, Inc. v. Commissioner,

503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292

U.S. 435, 440 (1934).    The taxpayer bears the burden of

substantiating the amount and purpose of any items claimed as

deductions.   Hradesky v. Commissioner, 65 T.C. 87, 89 (1975),

affd. per curiam 540 F.2d 821 (5th Cir. 1976).

     Section 163(h)(1) generally disallows a deduction for

personal interest.    An exception to this rule is qualified

residence interest.    Sec. 163(h)(2)(D).   Qualified residence

interest includes interest paid or accrued during the taxable

year on acquisition indebtedness.    Sec. 163(h)(3)(A).

Acquisition indebtedness means any indebtedness that is incurred

in acquiring, constructing, or substantially improving any

qualified residence of the taxpayer and is secured by the
                               - 6 -

residence.   Sec. 163(h)(3)(B)(i).   A qualified residence includes

the principal residence of the taxpayer.   Sec. 163(h)(4)(A).

     Generally, for interest on a mortgage to be deductible the

indebtedness must be an obligation of the taxpayer and not an

obligation of another.   Smith v. Commissioner, 84 T.C. 889, 897

(1985), affd. without published opinion 805 F.2d 1073 (D.C. Cir.

1986).   However, section 1.163-1(b), Income Tax Regs., 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.”

Where a taxpayer has not established legal, equitable, or

beneficial ownership of property, we have disallowed the

taxpayer’s claimed mortgage interest deduction.    Hynes v.

Commissioner, 74 T.C. 1266, 1288 (1980); Song v. Commissioner,

T.C. Memo. 1995-446; Bonkowski v. Commissioner, T.C. Memo.

1970-340, affd. 458 F.2d 709 (7th Cir. 1972).

     In order for petitioner to be entitled to deduct the home

mortgage interest for the portion of 2007 during which she was

not actually liable on the mortgage, we must find that she was

either a legal or equitable owner of the home at that time.     The

Court considers State law to determine the nature of a taxpayer’s

property rights.   United States v. Natl. Bank of Commerce, 472
                               - 7 -

U.S. 713, 722 (1985); Aquilino v. United States, 363 U.S. 509,

513 (1960).

I.   Legal Ownership

      In Massachusetts the statute of frauds requires that

contracts for the purchase and sale of real property be in

writing.   Johnson v. Johnson, 946 N.E.2d 157 (Mass. App. Ct.

2011); Belo, LLC v. 175 Olde Canal Drive, LLC, No. 07 MISC 356331

(Mass. Land Ct., Feb. 2, 2010).     Such writing must reasonably

identify the essential terms of the purchase contract, such as a

description of the property, identification of the parties, the

purchase price, and an indication that the transaction is a sale

of the property.   Simon v. Simon, 625 N.E.2d 564, 567 (Mass. App.

Ct. 1994) (citing Schwanbeck v. Federal-Mogul Corp., 592 N.E.2d

1289, 1294 (Mass. 1992), and Michelson v. Sherman, 39 N.E.2d 633

(Mass. 1942)).   However, the writing requirement may be excused

when “detrimental reliance on, or part performance of, an oral

agreement to convey property may estop the defendant from

pleading the Statute of Frauds as a defense.”     Nessralla v. Peck,

532 N.E.2d 685, 688 (Mass. 1989).    Even so, this type of estoppel

is not available where a party relies to their detriment on an

oral agreement that leaves significant details of the contract

unresolved.   See Pappas Indus. Parks, Inc. v. Psarros, 511 N.E.2d

621, 623 (Mass. App. Ct. 1987).
                                - 8 -

      The record does not establish that petitioner was the legal

owner of the home before June 2007.     Petitioner and Mr. Beeman’s

agreement was not reduced to a writing that would satisfy the

statute of frauds, as is generally necessary for the transfer of

an interest in land in Massachusetts.    See Johnson v. Johnson,

supra.   In addition, the doctrine of equitable estoppel is not

available to legitimate any oral agreement between petitioner and

Mr. Beeman, because there is no evidence in the record that the

parties reached agreement on several important details of the

contract, including the purchase price and type of ownership

interest involved.    See Pappas Indus. Parks, Inc. v. Psarros,

supra.   Furthermore, petitioner acknowledged that before 2007 it

was her intention that she not be “legally attached on the

mortgage” of Mr. Beeman’s home.    This intention is consistent

with petitioner’s decision to remain off the deed and unbound by

the terms of the mortgage before her inclusion on them in June

2007.    Petitioner has not provided evidence to indicate any

change in her position as it relates to legal ownership before

that time.

II.   Equitable Ownership

      Before the time at which petitioner’s name was added to the

mortgage, petitioner contends that she and Mr. Beeman had agreed

that they would share in any profits if the home were sold.

Petitioner claims that this understanding was reached by early
                               - 9 -

2007 and led to her eventual addition to the mortgage in June of

that year.   Petitioner’s contention is that by paying portions of

the mortgage payment throughout the first half of 2007 and by

paying for improvements to the home, she gained equitable

ownership in the property.   Petitioner contends that she and Mr.

Beeman reached their agreement on the basis of their

understanding that it would be unjust for petitioner to pay a

considerable portion of the mortgage but not share in any of the

benefits of ownership.

     In many States the purchaser of an interest in real property

is treated as the equitable owner of real estate from the date

the purchase and sale agreement is reached; the rents and profits

belong to him and the losses fall on him.      Laurin v. DeCarolis

Constr. Co., 363 N.E.2d 675, 677 (Mass. 1977); see Beal v.

Attleboro Sav. Bank, 142 N.E. 789, 790 (Mass. 1924).      However,

Massachusetts has taken a different approach.     Under

Massachusetts law, where an agreement to transfer an ownership

interest in real property exists, the transferor retains the

legal title to the property “subject to an equitable obligation

to convey” it to the transferee on payment of the purchase money

price.   Laurin v. DeCarolis Constr. Co., supra at 677.     Until the

deed is delivered, the vendor bears all the risks of ownership

should the property be destroyed.      Id. at 678; Libman v.

Levenson, 128 N.E. 13, 13-14 (Mass. 1920).     He also has the
                               - 10 -

exclusive right to possession of the property and the right to

its rents and profits.   Beal v. Attleboro Sav. Bank, supra at

790-791.   Thus, the rights of the purchaser are merely contract

rights and do not amount to the rights of an ownership interest

in real property.    Laurin v. DeCarolis Constr. Co., supra at 677.

     On the record before us, we find that petitioner does not

have an equitable ownership interest in the home under

Massachusetts law.   Even if we were to assume that the vague and

undefined agreement between petitioner and Mr. Beeman regarding

her interest in the home amounted to a valid contractual

agreement for the transfer of an interest in real property under

Massachusetts law, it would be insufficient to confer an

equitable interest upon petitioner.     This is because even after a

purchase agreement is reached, the title to real property remains

with the seller and he retains all of the benefits and burdens

associated with ownership until the point at which the deed is

actually delivered and the purchase money paid.     Id. at 677-678.

Here, the deed was not delivered until petitioner was added to it

in June, and it is uncertain that any definite purchase price was

ever agreed upon so that it could have been paid.    Therefore,

under Massachusetts law, equitable ownership of the home remained

solely in the hands of Mr. Beeman before petitioner’s possession

of the deed and inclusion on the mortgage.
                              - 11 -

     In addition to State law, this Court also considers certain

factors to determine whether a taxpayer is an equitable or

beneficial owner of property, including whether the taxpayer:

(1) Has a right to possess the property and to enjoy the use,

rents, or profits thereof; (2) has a duty to maintain the

property; (3) is responsible for insuring the property; (4) bears

the property’s risk of loss; (5) is obligated to pay the

property’s taxes, assessments, or charges; (6) has the right to

improve the property without the owner’s consent; and (7) has the

right to obtain legal title at any time by paying the balance of

the purchase price.   Blanche v. Commissioner, T.C. Memo. 2001–63,

affd. 33 Fed. Appx. 704 (5th Cir. 2002).

     Several of these factors weigh against petitioner for the

period before her addition to the mortgage.    Specifically,

petitioner did not have legal right to any rents or profits from

the home, nor did she bear any of the risk of loss associated

with it.   Furthermore, petitioner has not shown that she was

legally responsible for insuring the property or paying any

taxes, assessments, or charges.    There is also no indication that

petitioner had the right to obtain legal title by paying the

balance of the purchase price.    Accordingly, we find that

petitioner was not an equitable owner of the home before her name
                             - 12 -

was added to the mortgage and deed in June 2007 and sustain

respondent’s determination in the notice of deficiency.

     To reflect the foregoing,


                                        Decision will be entered

                                   for respondent.
