If you are looking for reasons not to get married, then here’s one from the Internal Revenue Service (IRS). Thanks to a recent evaluation of an existing ruling, unmarried couples can now effectively deduct twice as much of their mortgage and home debt than married couples.
A Tax Break for Couple Who Haven’t Tied the Knot
A year ago, a lawsuit filed by domestic partners Bruce Voss and Charles Sophy in California challenged the IRS’s mortgage-deduction rules. Voss and Sophy owned two properties together, and were about $2.7 million in debt on their houses and were paying a combined interest of about $180,000 every year.
The current tax code allows taxpayers to receive a reduction in mortgage debt for up to $1 million, and up to $100,000 in home equity financing. But when Voss and Sophy each tried to deduct their debt, the IRS said the $1.1 million limit had to be applied on a per-residence basis.
Voss and Sophy sued, but the tax court decided to side with the IRS. The couple appealed to U.S. Court of Appeals for the Ninth Circuit, and the Court of Appeals overturned the ruling, claiming that a closer reading of the tax code entitled the men to separate deductions. In other words, the unmarried Voss and Sophy were each entitled to receive a $1.1 million deduction limit.
Bigger Tax Deductions for Unmarried Couples
The ruling no longer applies to just Voss, Sophy, and other taxpayers under Ninth Circuit jurisdiction. This month, the IRS made the ruling applicable to all taxpayers nationwide.
This ruling could potentially pose a dilemma to couples who are planning to be married, because getting married enforces the implementation of the $1.1 million limit to deductions in mortgage and home debt. But if you decide not to marry your partner, you can deduct up to $2.2 million in mortgage and home debt.
The ruling also applies if you want to purchase property with a friend or family member. It is worth noting, however, that purchasing a home with a friend, loved one, or unmarried partner is risky if you eventually break up or fight.
“When you’re an unmarried couple, you don’t have protections,” said lawyer and Marcum partner Janis Cowhey. “As far as the law is concerned, you’re legal strangers.”
Daniella Lyttle is a divorce and family law attorney with offices in Austin and San Marcos. If you need a personalized assessment of your case, schedule a consultation with Lyttle Law Firm today. You can reach us at 512.215.5225.