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Sophy's choice: unmarried couples get only one $1.1 million deductible home mortgage loan

March 06, 2012

The tax law allows taxpayer to deduct interest on "only" $1.1 million in home mortgage debt -- $1 million in acquisition debt plus $100,000 equity debt. But what about unmarried couples? Since they don't file joint returns, can they double their deductible house debt?

Yesterday the Tax Court sided with the IRS, allowing only interest on $1.1 million owed on two houses owned together by celebrity psychologist Charles Sophy and his domestic partner. While headlines note that this case involves a same-sex couple, the same logic would apply to any unmarried couple.

There is a relatively simple loophole for this couple, as Janet Novack points out:

Reuben and Stevenson both noted that a same sex or unmarried couple could still exceed the $1.1 million limit if they held property separately, with one owning their primary home and the other their vacation home.

But if an unmarried couple has only one house, they only get one bite at the $1.1 million apple -- at least if the result isn't overturned on appeal.

Cite: Sophy, 138 T.C. No. 8/

UPDATE: A rare Althouse tax post.

UPDATE II: More from Anthony Nitti.

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Joe, I think there's a typo in your first paragraph - that's $100K of equity debt, not $1M.

Samina, thanks for letting me know. Fixed.

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