Unmarried Taxpayers Can Claim Mortgage Interest Deduction

Mortgage Interest Deductions for Unmarried Couples

In Voss v. Commissioner, 796 F.3d 1051 (9th Cir. 2015), the court addressed the rule that limits the deductibility of interest on home mortgages and home equity loans. This rule limits the amount of interest that can be deducted on mortgages in excess of $1 million and home equity loans in excess of $100 thousand.

In Voss, the issue was whether these limitations were applied on a property-by-property basis or on a taxpayer-by-taxpayer basis. The taxpayer was not married. His domestic partner, was a co-owner of the property and was jointly and severally liable for the mortgage debt on the property at issue in the case.

The IRS conducted an audit and concluded that the limitations applied on a property-by-property basis. The U.S. Tax Court agreed with the IRS. So according to IRS and the U.S. Tax Court, the taxpayer and his domestic partner were not able to both deduct the full amount of interest.

On appeal, the Ninth Circuit Court of Appeals concluded that the limit applies on a taxpayer-by-taxpayer basis. According to the Ninth Circuit Court of Appeals, since Voss and his domestic partner were not married, they were separate taxpayers and were each entitled to deduct the full amount of interest for the same property.

It was not clear whether the IRS would continue to challenge this issue, particularly for taxpayers who are not within the Ninth Circuit’s jurisdiction. The IRS recently issued AOD 2016-13 to put taxpayers on notice that it will follow the Ninth Circuit’s decision in Voss. So taxpayers can now rely on Voss.

It should be noted that Voss does not apply to married taxpayers that file separate tax returns. The limitation rule cuts the amount of the allowable home mortgage interest deduction in half for married taxpayers who file separate tax returns. The Ninth Circuit relied on this reduced amount–or the absence of a similar reduction for unmarried co-owners of property–in reaching its decision in Voss.


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