Monday, August 10, 2015
A split Ninth Circuit panel on Friday reversed the Tax Court and held, contrary to the IRS's position, that the § 163(h)(3) limitations on the deductibility of mortgage interest ($1 million of acquisition indebtedness plus $100,000 of home equity indebtedness) are applied on a per-taxpayer basis (for a total of $2.2 of mortgage debt), as contended by celebrity psychiatrist Charles Sophy and his domestic partner, Bruce Voss, who owned homes in Beverly Hills and Rancho Mirage, California, as joint tenants. Voss v. Commissioner, Nos. 12-73257 & 12-73261 (Aug. 7, 2015). (The Tax Court had upheld the IRS's position that §163(h)(3) applies on a per-residence basis (and thus limited to $1.1 of mortgage debt. Sophy v. Commissioner, 138 T.C. 204 (2012).)
Judge Ikuta dissented:
Today the majority interprets the Tax Code to allow unmarried taxpayers who buy an expensive residence together to deduct twice the amount of interest paid on the debt secured by their residence than spouses would be allowed to deduct. While the language of the relevant statute is ambiguous, the IRS has offered an interpretation that limits unmarried taxpayers in this situation to deducting the same amount as married taxpayers filing jointly. Because we should defer to this reasonable interpretation by the IRS, I dissent.
(Hat Tip: Pat Cain.) 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)
- Tax Court Shrinks Mortgage Interest Deduction for Gay/Lesbian Couples (Mar. 6, 2012)
- Ninth Circuit to Decide Amount of Mortgage Interest Deduction for Gay/Lesbian Couples (Feb. 8, 2013)
- Dodging DOMA: The State of the Mortgage Interest Deduction for Same-Sex Couples After Sophy v. Commissioner, 66 Tax Law. 787 (2013)
Update #1: From Howard Bashman's How Appealing blog: "Because a judge sitting by designation from another circuit provided the decisive vote on the three-judge panel, the case could have a better than average chance of attaining rehearing en banc should the IRS opt to pursue that remedy."
Update #2: San Francisco Chronicle, Tax Ruling a Win for Unmarried People Who Own a Home Together