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Mortgage interest deduction limit applies on per taxpayer basis

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A year ago, a divided Ninth Circuit reversed the Tax Court in Voss v. Commissioner, allowing two unmarried co-owners of real property to each claim a home mortgage interest deduction. Now, the IRS has acquiesced in the decision, giving a bonus to unmarried individuals who buy property together.

Bruce Voss and Charles Sophy, unmarried co-owners of the property, each claimed a home mortgage interest deduction under Tax Code section 163(h)(3). The Code section allows taxpayers to deduct interest on up to $1,000,000 of home acquisition debt and $100,000 of home equity debt. The IRS said Voss and Sophy were jointly subject to section 163(h)(3)’s debt limits, and therefore disallowed a substantial portion of their claimed deductions.

Voss and Sophy claimed the provision applies on a per-taxpayer basis, so they were each entitled to deduct interest on up to $1.1 million. While the Ninth Circuit conceded the language of the Code is “anything but plain,” it agreed with the taxpayers.

The decision of the IRS to acquiesce opens the door for unmarried couples outside the Ninth Circuit to claim the deductions subject to the increased limit, and adds an additional element to the marriage penalty under the Code.

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