Facts: A married homeowner obtained a $1 million mortgage to finance the purchase of his principal residence. The homeowner paid for the mortgage individually. The homeowner filed his tax returns with his filing status listed as “married filing separately” and deducted the interest paid on the entire $1 million mortgage.

Claim: The Commissioner of Internal Revenue Service (IRS) claimed the homeowner was limited to a standard deduction for the interest paid on $550,000 of the mortgage debt, since the homeowner filed his taxes as married filing separately.

Counter claim: The homeowner claimed he was eligible for a deduction of the interest paid on the full amount of the mortgage since he paid for the entire mortgage with his own funds.

Holding: A California court of appeals held the homeowner was not eligible for a deduction on the interest of the full amount of his mortgage, since the tax code only allows a deduction for interest paid on $550,000 of the mortgage when filing taxes as a married couple filing separately. [Faina Bronstein v. Commissioner of Internal Revenue (May17, 2012) 138 T.C. 21]

Editor’s note— The homeowner was also held liable for an accuracy-related penalty due to his negligence when filing.