On August 7, 2015, the U.S. Court of Appeals for the Ninth Circuit issued a decision in Bruce Voss, et al. v. CIR that will have far-reaching implications for American single taxpayers who co-own or are contemplating co-owing qualified residences.
At issue in this case of first impression is whether under 26 U.S.C. § 163(h)(3)(B)(ii) and (C)(ii), two unmarried co-owners of a qualified residence are each entitled to deduct interest payments made on their acquisition mortgage and home equity indebtedness of up to the statutory limit of $1.1 million, a per tax-payer determination, or are each limited to deducting only one-half or a proportionate share of the amounts of interest payments made on their acquisition mortgage and home equity indebtedness, or interest paid on just $550,000 each, a per-residence determination.
In the opinion authored by Judge Jay S. Bybee, the court found in favor of the taxpayers, Mr. Voss and his partner. Reversing a 2012 ruling by the Tax Court, the Ninth Circuit determined that two individual taxpayers who co-own a qualified resident are each entitled to deduct interest payments made on their acquisition mortgage and home equity indebtedness of up to the statutory limit of $1.1 million.
The decision comes six months after Sideman & Bancroft LLP Partner Emily Kingston presented oral arguments on behalf of Mr. Voss and his partner. In her appearance, Ms. Kingston argued that in its 2012 ruling, the Tax Court ignored the plain language of the applicable statute, which does not contain any language indicating that two single taxpayers who co-own a qualified residence are limited to claiming deductions on just their proportionate share of the $1.1 million debt, as the statute explicitly provides for married taxpayers filing separately, and that if Congress had intended to treat single unmarried co-owners of qualified residences in the same manner as it treats married taxpayers filing separately, if would have drafted the language to do so. As Ms. Kingston argued, in the Internal Revenue Code, married taxpayers are treated as one taxpayer, while individual unmarried taxpayers are treated as two separate taxpayers.
The Ninth Circuit’s decision in this case will have far-reaching national implications, potentially affecting millions of single taxpayers who co-own or are contemplating co-owing qualified residences encumbered by acquisition and home equity indebtedness, as well as taxpayers who have previously claimed interest deductions in a manner inconsistent with the Ninth Circuit’s historic decision.
A copy of the Ninth Circuit’s opinion can be found here. A video of Ms. Kingston’s February oral argument can be found here.
