Friday, July 19, 2013

Mortgage Interest Deduction Limitations for Co-Owners

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.

An UNMARRIED couple jointly owned their principal residence in California as joint tenants.  They held a mortgage of $2,000,000 on the residence and took out an additional $300,000 line of credit secured by the residence.  On their respective tax returns each claimed mortgage interest on $1,100,000 of indebtedness.

Upon audit IRS took the position the $1,000,000/$100,000 limitations apply per property and not per taxpayer, thus limiting the interest deductions to the interest on a COMBINED total of $1,100,000.

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.

You can find this case by going to, clicking on the OPINION SEARCH tab and then entering Sophy in the CASE NAME box.  We can also send you a pdf copy of the case attached to an email upon request.

Sophy, 138 TC No 8

- This post has been shared with you courtesy of: David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065

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