Tax loophole quiz: I’m single, and I want to buy a condo with my partner. Can we each qualify for the $1mm mortgage interest tax deduction?
Like all interesting tax questions, this one came up the week before income taxes were due, so it’s been hard to consult professionals.
But the short answer to this question, which grew out of something I shot from the hip on the curbed boards, is: probably.
If you’re an individual, the IRS limits deductible mortgage interest to $1mm. If you’re just John Doe, that’s easy to figure out: you have tests as to whether on not the property is a residence, when you bought it, etc., but basically you can go to the $1mm cap.
Married people filing jointly, as curbed posters Wally and VDH pointed out to me, are limited to $500k each.
But what about non-married people? (The most obvious scenario is gay co-buyers, but you could have straight ones, too.) I couldn’t easily google the answer to this question, so I picked up the phone and called the IRS.
And in discussions with nice IRS agent 2504681, it seems that a $1mm cap is the intention for single people who are sharing a single mortgage loan — they can they allocate the deductions amongst themselves, basically subject to who paid the interest in question in the first place, but they can’t deduct $2 mm.
But there doesn’t seem to be codification about single people who are co-buyers with different mortgage loans.
As I put it on curbed:
” . . . there’s nothing on the face of it, to keep Peter from taking out a $1mm loan that he pays the interest on, and Paul to take out a separate $1mm loan that he pays the interest on, on the same property which they co-own.
Then each of them could file separately to enjoy the full benefits of the $1mm deduction. Peter gets a $1mm deduction on loan A, Paul gets a $1mm deduction on loan B, for a total of $2mm.
It seems also plausible that Peter and Mary, if they were unmarried individuals who filed separate returns, could do the same thing.
The really interesting point is, this isn’t codified — the IRS guy is basically reading publication 936 while we discuss this.
It does seem like one of those things that follows the letter but not necessarily the spirit of the law.”
So, consult your tax professionals, buyers. I’m only a real estate agent, and I can’t give legal or tax advice. While, as Wally pointed out to me, you’d have to find a bank that would make two separate loans on a co-bought property, it does seem possible.
Signing off from frontporchllc.com — bringing you real estate tax loopholes since 2007.
regards,
alison rogers