In 2009, Chief Counsel Advice (CCA 200911077) ruled 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. (The $1 million limit was subsequently reduced o $750,000 by the TCJA).

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.

However, the Ninth Circuit Court of Appeals reversed the Tax Court’s decision, and the IRS 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.

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.