Monday, September 21, 2015

Reversal of Mortgage Interest Deduction Limitations for Co-Owners

Back in 2013 we reported the Sophy case regarding two unmarried co-owners of co-owned real estate that they both used as their principal residence.  Tax Court had ruled their Acquisition Indebtedness limit was one combined $1,000,000 instead of $1,000,000 each and the Home Equity limit was one combined $100,000 limit instead of $100,000 each.  Now the Court of Appeals for the 9th Circuit overturned this case and ruled the limit for Acquisition Indebtedness and Home Equity debt limits are $1,000,000 and $100,000, respectively, for EACH unmarried co-owner.

There are two limits on mortgage interest debt.  First is an Acquisition Indebtedness limit of $1,000,000.  Second is a Home Equity Indebtedness limit of $100,000.  (Home Equity Indebtedness can be used for any purpose including purchasing the residence.)  The question in this case is whether these limitations are to be applied per taxpayer or per residence.

Again Tax Court agreed with IRS citing the code’s verbiage as saying “with respect to any qualified residence of the taxpayer.”  Tax Court stated it appears Congress intended the limit to apply per property and not per taxpayer.  The Court of Appeals for the 9th Circuit ruled in favor of the taxpayer.

You can find the Tax Court case by going to, clicking on the OPINION SEARCH tab and then entering Sophy in the CASE NAME box.  You can find the Appeals Case by going to and entering Sophy.

Sophy, 138 TC No 8; 9th Circuit Court of Appeals

This text has been shared with you courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).

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