Facts: Two unmarried co-owners of two properties claimed separate Federal income tax deductions for their home mortgage interest payments. The co-owners each reported deductions for interest paid on $1 million of acquisition indebtedness and $100,000 of home equity indebtedness.

Claim: The Internal Revenue Service (IRS) sent notices of deficiency to the co-owners, claiming they had exceeded the allowable deduction limits on a qualified residence since together their reported deductions exceeded the $1.1 million limit per qualified residence.

Counter claim: The co-owners claimed they were each allowed deductions for mortgage interest on up to $1.1 million in mortgage debt, since the limit applied only to individuals or married couples, not co-owners.

Holding: A Federal tax court held the co-owners must pay the deficiency amount since they had exceeded their mortgage interest deduction limit as the limit of $1.1 million is considered on a per- qualified residence basis, rather than on a per-taxpayer basis. [Sophy v. Commissioner of Internal Revenue (2012) 138 TC No. 8]

Editor’s note – This ruling was made for two unmarried co-owners of a qualified residence, without regard to their unequal tax status as a same-sex couple. When the IRS stands to lose, they are more than willing to treat same-sex couples sharing a residence as a married couple, while not allowing same-sex couples to claim other deductions available to married couples.

A disparity of opportunity is clear for same-sex couples compared to heterosexual couples whose marriages are recognized by the federal government for tax purposes.