MORTGAGE INTEREST LIMITATIONS

The recent NATP TAXPRO MONTHLY reminded me of a 2015 tax-related court decision.

In August of this year the US Court of Appeals reversed the Tax Court decision in Charles J Sophy, et al, v Commissioner, 138 TC204.

The original decision upheld the IRS position, as per CCA 200911007, that the $1 Million acquisition debt and $100,000 home equity debt limitations on the deduction of mortgage interest on Schedule A were “per residence” and not “per person”.

The case involved two unmarried taxpayers who jointly purchased a primary personal residence in Beverly Hills CA with a $2,240,000 acquisition debt mortgage and also took out a $300,000 home equity loan which they used to purchase a second home.  They each wanted to claim interest on the $1.1 Million debt limit, effectively deducting interest on $2.2 Million of debt.  The IRS said they were limited to interest on $1.1 Million in debt between them – or $550,000 of debt each, and won in Tax Court.

But the Court of Appeals ruled that co-owners of one primary residence can each claim mortgage interest on up to $1 Million in acquisition debt and $100,000 of home equity debt.  They said that the statutory limits are NOT per residence, but are per person.

FYI, I have written “Mortgage Interest Guide” in which I discuss what you can deduct as mortgage interest on Schedule A, who can claim the deduction, types of mortgage debt, limitations on deductible mortgage interest, refinancing, and points, and provide worksheets, with complete instructions and detailed examples, for keeping track of acquisition debt and home equity debt.  It is part of my “Dollar Store”.  I will need to update this guide to include this relatively new court decision.

TTFN