How a recent IRS decision on mortgage interest is a bonus for unmarried couples

So you and your partner have taken the plunge and bought a house together. Congratulations! It’s a huge milestone, and with it comes the joy of homeownership… and the not-so-joyful task of dealing with taxes. But hey, there might be some good news on the horizon, especially for unmarried couples.

A recent decision by the IRS (that’s the Internal Revenue Service, for those new to the tax game) could mean some serious tax savings for you and your boo. Let’s break down what this means and how it can benefit unmarried homeowners like yourselves.

One of the biggest perks of owning a home is the mortgage interest deduction. Basically, the interest you pay on your mortgage loan can be subtracted from your taxable income, which lowers your overall tax bill. It’s a pretty sweet deal, especially for those with hefty mortgages.

Here’s the catch: there’s a limit to how much mortgage interest you can deduct. It used to be a bit of a maze, but currently, it applies to the interest on the first $1.1 million of your mortgage debt (that’s $1 million for traditional mortgages and an additional $100,000 for home equity loans).

Now, for married couples filing jointly, this limit applies to their combined mortgage debt. That makes sense, right? But what about unmarried couples who co-own a home?

Here’s where things get interesting. In a recent court case (Voss v. Commissioner), the IRS changed its stance on how unmarried co-owners can deduct mortgage interest. The court ruled that the deduction limit applies per taxpayer, not per couple.

What does this mean in English? It means that if you and your partner co-own a home and are both on the mortgage, you can each deduct the interest paid on up to $1.1 million of your share of the debt.

Let’s see this with an example: Imagine you and your partner have a $500,000 mortgage and split it evenly. Under the old rule, you could each only deduct the interest on $250,000 (your half). But now, with the new ruling, you can each deduct the interest on the full $500,000, potentially doubling your deduction!

That’s a significant tax savings, folks. We’re talking about putting more money back in your pockets, which you can use for things like home improvements, that dream vacation, or that extra down payment on your future goals.