Last week brought bad news for wealthy unmarried couples who own homes together. The U.S. Tax Court held that the $1.1 million limit on the mortgage interest deduction must be applied per residence, not per taxpayer, even where the co-owners are unmarried and file separate tax returns.

Home mortgage interest for a loan or loans totaling $1 million is deductible as an itemized deduction. Interest on a home equity loan — for a primary or second home — of up to $100,000 is also deductible. Thus, you can deduct the interest on a total of $1.1 million in home loans each year. If you borrow more than that, the additional interest is not deductible.

If a married couple own a home or homes and file a joint return, the $1.1 million limit applies to them both together. If they file separately, the limit is cut in half for each. So, either way, married couples are limited to deducting the interest on only $1.1 million.

But what about when unmarried couples purchase homes together and file separate returns — does the limit apply to them both together or to each separately?

Charles and Bruce, an unmarried couple, purchased a principal residence in Beverly Hills, Calif., and a second home in Rancho Mirage, Calif., as joint tenants. They each filed separate tax returns. Their total mortgage debt was more than $2.7 million.

Charles and Bruce each deducted on their separate returns the interest on $1.1 million of their loans. Thus, together they deducted the interest on $2.2 million.

The Internal Revenue Service said that Charles and Bruce together could deduct only the interest on $1.1 million. The couple argued that because they were not married, the limitations on married taxpayers don’t apply to them.

Instead, they claimed that when unmarried people co-own a house the $1.1 million limit applies to each individual taxpayer.

The Tax Court sided with the IRS. It held that the $1.1 million limit applies per residence, not per taxpayer, even where a home is co-owned by unmarried taxpayers.

Thus, even though they were unmarried and filed separate returns, Charles and Bruce could together deduct the interest on only $1.1 million of their mortgage debt.

Instead of deducting more than $76,000 in mortgage interest on their individual returns, they could each deduct only $38,000.

Unmarried people who purchase expensive homes should keep this limitation in mind.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription