Voss v. Commissioner of Internal Revenue
Facts: Two unmarried co-owners both individually claim a separate mortgage interest deduction (MID) on their tax returns for each of two qualified residences they co-own. The total deductions exceed the $1 million joint debt limit that applies to married co-owners of property. The Internal Revenue Service (IRS) audits the unmarried co-owners’ tax returns and issues a deficiency notice to each co-owner rejecting their claim for interest deductions exceeding the $1 million joint debt limit.
Claim: The unmarried co-owners claim they are each individually entitled to deductions under the full $1 million debt limit since they are not married and thus not subject to the joint debt limit.
Counterclaim: The IRS claims the unmarried co-owners are only entitled to a combined $1 million debt limit since the MID applies to co-owners on a per residence basis, which subjects the unmarried co-owners to the same joint debt limit as married co-owners.
Holding: A California court of appeals holds the unmarried co-owners are each entitled to a $1 million debt limit for an MID since the limits for an MID are not applied on a per residence basis, subjecting unmarried co-owners to the joint debt limit, but on a per taxpayer basis, which applies the full debt limit to each unmarried co-owner. [Voss v. Commissioner of Internal Revenue (2015) 796 F3d 1051]