Question

Sidney Crosby and his unmarried partner, Kathy Leutner, decided to buy a new house just outside of Pittsburg, Pennsylvania. After much searching, they find their dream home and buy it for $2.2 million. They put a down payment of $700,000 on the house and finance the other $1.5 million. Each takes out a $750,000 mortgage, for a total of $1.5 million.

1. Since they are unmarried, can each deduct the full mortgage interest on their tax returns or are they limited by the mortgage interest limitations of IRC §163(h)(3)(B)? Is the mortgage interest limit on acquisition indebtedness applied on a per residence or per taxpayer basis?

Answer 1

As per the IRC §163(h)(3)(B)(i) provides that acquisition indebtedness ia any indebtedness that is incurred in acquiring,constructing or substantialy improving the qualified residence and is secured by the residence.

As per the IRC §163(h)(3)(B)(ii) provides the limit the amount of indebtedness treated as acquisition indebtedness , $ 1000000 for individual and ( $ 500000 for married couple individually filling returns)

In above case Sidney Crosby and his partner Kathy leutner are unmarried so they individually deduct the full mortage interest on their tax returns because as per IRC §163(h)(3)(B)(ii) the limit of acquistion indebtedness is $ 1000000 but individually they have accuired $ 750000 , so they can deduct total interest on mortage on their individual return

The mortage interest limit on acquisition indebtness applied on per individual/Taxpayers basis.

For better understading, in above case both the partners can claim interest deduction on acquisition indebtedness in  their individual return for the same residence , so its very evident from the above scenario that the limit on acquisition indebtedness is applied per taxpayer basis.