Close Close

Regulation and Compliance > Federal Regulation > IRS

IRS Allows Mortgage Interest Deduction for Unmarried Couples

Your article was successfully shared with the contacts you provided.

The Internal Revenue Service this week announced that it had “acquiesced” in a year-old decision by the U.S. Court of Appeals for the 9th Circuit that allowed two unmarried domestic partners each to claim a home mortgage interest deduction on a residence they owned together.

The decision could have far-reaching implications for many single taxpayers who co-own qualifying residences.

Under § 163(h)(3) of the Internal Revenue Code, a taxpayer may deduct interest paid on a mortgage — limited to $1 million of mortgage debt — or a home equity line of credit — limited to $100,000 — for a principal residence and a second home.

The debt limit is $550,000 for a married taxpayer filing a separate return. For home indebtedness of more than $1.1 million, the taxpayer may deduct only the ratio of the statutory debt limit divided by the total actual debt.

In the case before the 9th Circuit, Bruce Voss and Charles Sophy, California-registered domestic partners who owned homes in Rancho Mirage and Beverly Hills, argued that each was entitled to his own limitation on the jointly owned property. The IRS disagreed, and the Tax Court ruled that they had to share the limitation.

The Ninth Circuit, in Voss vs. Commissioner, decided in the petitioners’ favor in a 2-1 opinion handed down on Aug. 7, 2015: “Although the statute is silent as to unmarried co-owners, we infer from the statute’s treatment of married individuals filing separate returns that § 163(h)(3)’s debt limits apply to unmarried co-owners on a per-taxpayer basis.”

The IRS said its acquiescence meant it accepted the court’s holding and would follow it in disposing of cases with the same controlling facts, but this indicated neither approval nor disapproval of the reasons the court gave for its conclusions.

Initial reactions to the court decision by tax professionals suggest that the ruling bodes well for single taxpayers.

On Accounting Today, senior editor Roger Russell, a tax attorney, wrote: “The decision of the IRS to acquiesce opens the door for unmarried couples outside the 9th Circuit to claim the deductions subject to the increased limit, and adds an additional element to the marriage penalty under the Code.”

Ed Zollars, a CPA writing on the Current Tax Developments site, said: “Advisers with taxpayers who applied a per residence limit on mortgage interest deductions in prior years should consider suggesting those taxpayers file claims for refund on those prior years where the statute of limitations remains open.”

— Related on ThinkAdvisor:


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.