Under the Internal Revenue Code, mortgage interest is deductible from income, provided that the outstanding mortgage balance is less than $1 million. Similarly, interest payable on a home equity line of credit that is used to finance home improvements is deductible as well, but only up to a loan balance of $100,000. An unmarried couple may at first glance assume that if they each buy half of a $2 million house, they can each fully deduct his or her half of the mortgage interest on his or her individual tax return. This would be true if the $1 million limitation is per taxpayer. A recent U.S. Tax Court case ruled otherwise.<\/p>\n
In Sophy v. Commissioner of Internal Revenue, 138 T.C. No. 8, an unmarried couple purchased two houses in California, a vacation home and a principal residence, with outstanding principal mortgages that exceeded $2 million combined as well as a home equity line of credit with a principal balance exceeding $200,000. They each claimed interest deductions for interest attributable to $1 million mortgage balance and $100,000 home equity loan balance. The IRS sent both deficiency notices, asserting that the $1 million and $100,000 caps are \u201cper residence,\u201d not \u201cper taxpayer\u201d. The Sophy couple brought the issue to court, arguing that the limitations were intended to impose a \u201cmarriage penalty\u201d on married couples. The Court dismissed the couple\u2019s argument, pointing out that a married couple filing separately would likewise be limited to half of the $1 million and $100,000 caps each.\u00a0\u00a0\u00a0\u00a0 \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"
Mortgage interest is deductible from income, provided that the outstanding mortgage balance is less than $1 million. Similarly, interest payable on a home equity line of credit that is used to finance home improvements is deductible as well, but only up to a loan balance of $100,000. An unmarried couple may at first glance assume that if they each buy half of a $2 million house, they can each fully deduct his or her half of the mortgage interest on his or her individual tax return. This would be true if the $1 million limitation is per taxpayer. In Sophie v. Commissioner, a recent U.S. Tax Court case, the court ruled otherwise.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[110,137],"class_list":{"0":"post-1437","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-tax-tips-for-individuals","7":"tag-income-tax-planning","8":"tag-mortgage-interest-deduction-limit","9":"entry"},"_links":{"self":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1437","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=1437"}],"version-history":[{"count":0,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/1437\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=1437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=1437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=1437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}