Bruce Voss and Charles Sophy, unmarried domestic partners, each filed a home mortgage interest deduction on jointly owned properties under §163(h)(3) reaching the maximum allowed deduction. However, the IRS challenged the deductions saying that they were subject to the joint filing limit imposed on married couples and assessed new taxes. The ruling was challenged by the taxpayers and the tax court sided with the IRS before the case was appealed to the 9th Circuit Court of Appeals. In Voss v. Commissioner, the court held that each taxpayer was allowed to take the maximum deduction for a total of $2.2 million in deductions between them rather than the $1.1 million cap the IRS proposed. As a result, a de facto penalty is imposed on married high earners that are capped at the same deduction level as an unmarried couple filing separately for the home mortgage interest deduction.
See Laura Saunders, Another Reason Not to Get Married, Wall Street Journal, August 21, 2015.
Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.
