Ninth Circuit: Home mortgage interest; Tax Court reversed

Home mortgage interest; Tax Court reversed

The U.S. Court of Appeals for the Ninth Circuit today reversed a Tax Court decision concerning the section 163(h)(3) limitations on indebtedness when unmarried co-owners seek to deduct mortgage interest for their qualified residence.


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The Tax Court in 2012 held that the debt limit provisions are to be applied on a per-residence basis, not per-taxpayer basis, when the property is co-owned by individuals who are not married to each other.

The Ninth Circuit today reversed, and held that the debt limit provisions of section 163(h)(3) apply on a per-taxpayer basis to unmarried co-owners of a qualified residence. Voss v. Commissioner, No. 12-73257 (9th Cir. August 7, 2015)


Read the Ninth Circuit’s 50-page decision [PDF 237 KB] that includes a dissenting opinion.


As the Tax Court found, the two unmarried individuals in this case jointly owned two residential properties in California, subject to total acquisition indebtedness (home mortgage) and home equity loan exceeding $2.6 million.

On audit, the IRS disallowed a portion of each individual’s claimed deductions for qualified residence interest.

The taxpayers asserted that the indebtedness limitation under section 163(h)(3) is to be applied on a per-taxpayer basis—not on a per-residence basis—and that each person is to be allowed a deduction for interest paid on up to $1.1 million of acquisition and home equity indebtedness with respect to the residences that they jointly own.

The IRS countered that the indebtedness limitations apply on a per-residence basis, regardless of the number of residence owners and whether the co-owners are married to each other (thus, for a maximum of $1.1 million of acquisition and home equity indebtedness).

The Tax Court in 2012 agreed with the position of the IRS that the limitations on the amount of acquisition and home equity indebtedness are applied on a per-residence basis when the residence co-owners are not married to each other.

Today, the Ninth Circuit majority found that section 163(h)(3) was silent as to the debt limit provisions when two or more married co-owners of a residence claimed the home mortgage interest deduction, but inferred from the statute’s treatment of married individuals filing separate returns that the debt limits apply to unmarried co-owners on a per-taxpayer basis.

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