Involved in the caffeine degradation, which is the essential first step for assimilating the carbon and nitrogen in caffeine. Probably catalyzes the N7-demethylation of 7-methylxanthine to produce xanthine and formaldehyde. 7-methylxanthine + H(+) + NADPH + O2 = formaldehyde + H2O + NADP(+) + xanthine 7-methylxanthine + H(+) + NADH + O2 = formaldehyde + H2O + NAD(+) + xanthine