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Sophy v. Commissioner

United States Tax Court
138 T.C. 204 (2012)


Facts

Charles Sophy and Bruce Voss (plaintiffs) purchased two residences together, each subject to a mortgage. Sophy and Voss owned each residence as joint tenants and were jointly and severally liable for the indebtedness on each residence. Sophy and Voss were not married. The average balance of Sophy and Voss’s indebtedness on the houses was approximately $2.7 million in 2006 and 2007. On their federal income tax returns in 2006 and 2007, Sophy and Voss each claimed qualified residence interest deductions based on the amount of mortgage interest they had paid in each year. Sophy and Voss each claimed the maximum deduction based upon interest paid on $1 million of acquisition indebtedness, Thus, Sophy and Voss claimed the deduction based on a total of $2 million of acquisition indebtedness. The Internal Revenue Service (IRS) (defendant) disallowed portions of these deductions on the ground that the deductions exceeded the $1 million acquisition indebtedness limit under 26 U.S.C. § 163. Sophy and Voss appealed, asserting that the acquisition indebtedness limit applied on a per-taxpayer basis for non-married co-owners. Sophy and Voss thus argued that they each were able to base a deduction on $1 million of acquisition indebtedness.

Rule of Law

Issue

Holding and Reasoning (Cohen, J.)

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