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IRS Doubles the Mortgage Interest Deduction for Unmarried Couples

September 12, 2016

Are you a joint tenant with a non-spouse? You may not need to limit your mortgage interest deduction thanks to a recent 9th Circuit ruling.

The IRS has acquiesced in the 9th Circuit decision to allow two unmarried co-owners of real property to claim a home mortgage interest deduction. The ruling comes after a case fought in tax court a year ago, Voss vs. Commissioner. Since the ruling treats unmarried co-owners as single filers, it will allow all non-spouse co-owners to claim double the deduction that married joint filers are allowed.

Voss vs. Commissioner

The ninth Circuit Court of Appeals—Mortgage interest deduction

The US Court of Appeals for the Ninth Circuit is a federal court with something called, “appellate jurisdiction,” meaning it is a superior court that can review decisions and change outcomes of decisions made by inferior courts. The Ninth Circuit has appellate jurisdiction over the district courts in many districts including California—where Charles Sophy and Bruce Voss reside.

In the case of Voss vs. Commissioner, Bruce Voss and Charles Sophy were unmarried co-owners of the California property and each claimed a home mortgage interest deduction (Under Tax Code Section 163(h)(3)). Normally, IRS Code allows taxpayers to deduct interest on up to $1,000,000 of home acquisition debt and $100,000 of home equity debt. In Voss’ and Sophy’s case, the IRS said they were jointly subject to section 163(h)(3)’s debt limits, hence a substantial portion of their deduction claims were disallowed.

However, under the 9th Circuit’s decision, Voss and Sophy were each entitled to deduct interest on up to $1.1 million after claiming that the provision applies on a “per-taxpayer” basis. They were not married, hence able to file separately.

What is the IRS’ definition of acquiescence?

When one party gives legal notice of a fact or claim to a second party, and the second party fails to challenge or counter that claim within a reasonable time, the second party is said to have “acquiesced’ to the claim, and is forbidden from later challenging it, or making a counterclaim.

In the case of the mortgage interest deduction, the IRS acquiesced the 9th Circuit’s decision in the case of Voss vs. Commissioner.

The IRS Acquiesces

Because the IRS ‘acquiesced,’ on the Ninth Circuit’s ruling, the opportunity has opened for other unmarried couples outside the Ninth Circuit to claim the deductions subject to this increased limit.
The acquiescence means that the IRS will no longer fight this ruling.

If you currently co-own a house with a non-spouse, be sure to take advantage of this hefty deduction, if applicable.

For more information on the deduction, contact any member of our Tax Services Team.

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