Appeals Court Provides Tax Benefit to Unmarried Couples with High Mortgage Debt

A federal appeals court has agreed with an unmarried California couple that they should not be treated as married with regard to mortgage interest deductions limits.

Bruce Voss and Charles Sophy are co-owners of real property.  Each claimed a home mortgage interest deduction in reliance on Section 163(h)(3) of the Tax Code, which allows for deduction of up to $1 million of home acquisition debt interest, but splits the limit to $550,000 each for married individuals filing separate returns. The IRS determined that Voss and Sophy were jointly subject to these limits and thereby disallowed the rest, eliminating a significant amount of their deductions.

The U.S. Court of Appeals for the Ninth Circuit reversed the Tax Court decision, finding the mortgage debt limit provision in the Tax Code applies on a per-taxpayer basis except in the case of married individuals.  This allows each member of the couple to deduct mortgage interest up to the $1.1 million limit.


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