Appeals Court Panel Rules Home Mortgage Interest Deduction Limitations Apply Individually to Each Unmarried Co-Owner Taxpayer

In a two-to-one decision, a three-judge panel of the Court of Appeals for the Ninth Circuit has ruled that Federal income tax home mortgage interest deduction limitations apply individually to each unmarried co-owner of a qualified residence, and not to the residence itself. This means that each co-owner is entitled to a maximum $1.1 million indebtedness limitation for mortgage and home equity interest on his or her Federal income tax returns. This decision reverses a Tax Court ruling that the limitation applied on a per-residence basis.

The petitioner-appellants in this case are two domestic partners registered with the state of California. They co-own a primary residence and a vacation home as joint tenants, and are joint and severally liable for mortgage and home equity indebtedness. After audits, the Internal Revenue Service (IRS) determined that the two co-owners were limited to a single maximum $1.1 million indebtedness limitation apportioned between them. The taxpayers filed petitions in Tax Court, which decided in favor of the IRS. The taxpayers then appealed to the Court of Appeals, which decided in their favor.

This decision allows individuals in the Ninth Circuit who own property together (business partners, siblings, unmarried couples, etc.) to essentially double their mortgage interest deduction when the indebtedness is equal to or in excess of $2.2 million

Marcum is the thought leader in the specialty area of tax compliance and consulting services for high-net-worth modern families, same-sex couples and LGBT individuals. The Firm’s specialists have over 20 years of experience navigating the complex, hyper-local and shifting tax landscape for the modern family in America. In 2012, Marcum became the first national accounting firm to establish a tax and estate planning practice dedicated to the complex rules faced by people who don’t fit traditional definitions. Should you have any questions on the new mortgage interest rules, contact your Marcum Tax Professional.