Double Deduction for Unmarried Homeowners

The IRS has recently complied with the Ninth Circuit’s 2015 decision to allow two unmarried co-owners of qualified property to each claim a home mortgage interest deduction.

In last year’s Voss v. Commissioner decision, the Ninth Circuit reversed the Tax Court’s ambiguous statute regarding unmarried couples claiming home mortgage interest deductions. Originally, the IRS said that unmarried homeowners were jointly subject to section 163(h)(3)’s debt limits. The reversal determined that the mortgage interest limitation is intended to apply on a per-taxpayer basis, rather than a per-residence basis.

The IRS has approved deduction limitations for each unmarried taxpayer up to $1.1 million – $1,000,000 on home acquisition indebtedness and $100,000 of home equity indebtedness.

As for a married taxpayer filing separate tax returns, the debt limit is $550,000. For home debt exceeding $1.1 million, the married taxpayer may deduct only the ratio of the statutory debt limit divided by the total actual debt.

The split 2-1 vote by the Ninth Circuit in 2015, followed by the IRS’ acquiescence means that the outcome is not widely favored, but it will be allowed based on the facts provided in the case and granted for all unmarried co-owners of qualified property.

Should this decision affect you, please contact your advisor at (805) 963-7811 to consider the most appropriate tax strategies.