Interest payments on a mortgage are reported to the payer on Form 1098. This information is also reported to the IRS for matching purposes. The 1098 will usually be issued to only one co-owner, creating reporting and matching problems for the other(s).

To avoid the problem of getting unwanted correspondence from the IRS, the co-owners who didn’t receive a 1098 should report the interest they paid on line 8b of Schedule A (2021) and identify the name and address of the person who received the 1098. If filing a paper return, attach a statement to the return showing the name and address of the person who did receive the 1098, and next to line 8b, write “See Attached” (1040, Sch. A Instructions, Pg. A-9, 2021). Also see "Home Mortgage Interest" in Chapter 7 for more information on Form 1098.

Does Acquisition Debt Limit Apply to Residence or Individual Co-Owners? 

According to a Chief Counsel Advice (CCA 200911077) where two or more individuals own a residence with acquisition debt in excess of $1 Million dollars, the individuals jointly can only deduct the interest on the first $1 Million of acquisition debt.

An appeals court overturned an earlier Tax Court ruling (C. J. Sophy, 138 TC No. 8, Dec. 58,965) and took the same position the IRS put forward in the 2009 Chief Counsel Advice cited above. 

The Ninth Circuit Court of Appeals reversed the Tax Court’s decision, and the IRS has announced its acquiescence with the Ninth Circuit’s decision. Under this interpretation, the two unmarried co-owners are collectively limited to a deduction for interest paid on a maximum of $2.2 million, rather than $1.1 million, of acquisition and home equity indebtedness (Voss - IRB 2016-31, p. 193).Applying the Voss ruling to the changes made by the TCJA, it would seem that for years 2018 through 2025 the collective limit for acquisition indebtedness incurred after December 15, 2017, for two unmarried co-owners would be $1.5 million (2 x $750,000). No equity debt interest is deductible in 2018 through 2025; therefore, no equity debt is included in determining the collective limitation.

This can have significant implications for unmarried co-owners of a home.

AMENDED OPPORTUNITY: Taxpayers who previously limited their interest deduction in accordance with the IRS’ position and Tax Court ruling may be able to amend open-year prior returns for a refund.