March 6, 2012
Tax Court Shrinks Mortgage Interest Deduction for Gay/Lesbian Couples
The Tax Court yesterday agreed with the IRS that the § 163(h)(3) limitations on the deductibility of mortgage interest are applied on a per-residence basis (and thus limited to $1.1 of mortgage debt ($1 million of acquisition indebtedness plus $100,000 of home equity indebtedness)), rather than on a per-taxpayer basis ($2.2 of mortgage debt), as contended by celebrity psychiatrist Charles Sophy and his domestic partner who owned homes in Beverly Hills and Rancho Mirage, California, as joint tenants. Voss v. Commissioner, 138 T.C. No. 8 (Mar. 5, 2012).
Update: Forbes, In Loss For Gay Couples, Celebrity Shrink Gets Mortgage Deduction Shrunk, by Janet Novack:
A U.S. Tax Court judge ruled today that celebrity psychiatrist Charles J. Sophy and his domestic partner can deduct the interest on only $1.1 million in mortgage debt, combined, for the two houses they own together. The court ruling, the first on the issue, supports a March 2009 IRS Chief Counel Memo that surprised and disappointed accountants for affluent same sex and unmarried couples.
Prior TaxProf Blog coverage:
- IRS Limits Home Mortgage Interest Deduction for Gay/Lesbian Couples (March 23, 2009)
- Martin J. McMahon, Jr. (Florida), In Defense of CCA 200911007 (Mar. 25, 2009)
- Patricia Cain (Santa Clara), In Defense of the Consensus on CCA 200911007 (Mar. 25, 2009)
- Patrica Cain (Santa Clara), Unmarried Couples and the Mortgage Interest Deduction, 123 Tax Notes 473 (Apr. 27, 2009)
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Tracked on Mar 6, 2012 10:27:05 AM
Just yesterday I was telling a married couple with two homes that they could not deduct the interest on a third home they wanted to buy. (It was a place for the husband to store all his vehicles and work on all his projects, but it just as well could have been a houseboat or RV.)
The undecided case seems to be whether an unmarried couple can do that. Based on the Tax Court decision, they can, because the focus is on shared debt on a single residence, not shared or separate debt on two "second homes."
Just one more tax break for domestic partners.
Posted by: Bob | Mar 6, 2012 10:18:33 AM
I may be slow today but I cannot see how anything has been "shrunk" for the gay couple. They are limited to the same interest deduction that a heterosexual couple could have deducted. So how is that shrinkage?
They attempted to get more than a similarly situated non-gay couple could have deducted. The person writing the headline had an ax to grind.
By the way, it seems they would have gotten the deduction they wanted if the properties were not jointly owned.
Posted by: Ed D | Mar 6, 2012 12:39:07 PM
It seems like they are getting the same treatment as a married couple. I thought they wanted marriage and all the penalties that come along with it.
Posted by: Cheyanna Jaffke | Mar 6, 2012 12:59:48 PM
I think we can all agree on one thing, the IRS is screwing all of us in many different ways.
Posted by: Lt. Dangle | Mar 6, 2012 3:11:29 PM
IRS doesn't screw anyone...they are just the hired hands, the enforcers. Remocrat and Depublican gangs do the screwing and send in the enforcers when needed.
Posted by: TaxDudeSC | Mar 8, 2012 8:23:44 AM
If one of these taxpayers solely owned one of the properties and paid all of the associated mortgage interest on that property, and the other taxpayer solely owned the other property and paid all of the associated mortgage interest on that property, would they not have been able to achieve the desired result - a cap on interest paid on $1.1M on each residence?
Posted by: ZSG | Mar 30, 2012 11:49:56 AM