Unmarried Couples Filing Separate Returns Can Each Claim Home Mortgage Interest Deduction

In an opinion issued on August 7, 2015 the 9th Circuit Court of Appeals reversed a decision of the Tax Court and ruled that each person (including unmarried couples filing separate returns) can claim a home mortgage interest deduction under § 163(h)(3) of the Internal Revenue Code which allows taxpayers to deduct interest on up to $1 million of home acquisition debt and $100,000 of home equity debt. Each co-owner will be able to deduct from his/her income interest paid for the mortgages on their  “qualified residences” and one other piece of real estate.scale of justice

This was a tax dispute brought by two unmarried co-owners of real property, Bruce Voss and Charles Sophy. For the 2006 and 2007 tax years, Voss and Sophy each claimed a home mortgage interest deduction under § 163(h)(3) of the Internal Revenue Code, which allows taxpayers to deduct interest on up to $1 million of home acquisition debt and $100,000 of home equity debt. After an audit, the IRS determined that Voss and Sophy were jointly subject to § 163(h)(3)’s $1 million and $100,000 debt limits and thus disallowed a substantial portion of their claimed deductions. Voss and Sophy challenged the IRS’s assessment in Tax Court, arguing that the statute’s debt limits apply per taxpayer such that they were entitled to deduct interest on up to $1.1 Million.

In reaching its decision on how § 163(h)(3)’s debt limit provisions apply when two or more unmarried co-owners of a residence claim the home mortgage interest deduction the Court determined that while the statute is silent as to unmarried co-owners the statute’s treatment of married individuals filing separate returns made it clear that debt limits of § 163(h)(3) apply to unmarried co-owners on a per-taxpayer basis.

Here is a link to the opinion: http://sos.metnews.com/sos.cgi?0815//12-73257


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