Cir

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRUCE H. VOSS, No. 12-73257 Petitioner-Appellant, Tax Ct. No. v. 16443-

COMMISSIONER OF INTERNAL

REVENUE,

Respondent-Appellee.

CHARLES J. SOPHY, No. 12-73261 Petitioner-Appellant, Tax Ct. No. v. 16421-

COMMISSIONER OF INTERNAL

REVENUE, OPINION

Respondent-Appellee.

Appeal from a Decision of the United States Tax Court

Argued and Submitted February 5, 2015—Pasadena, California

Filed August 7, 2015 Before: Michael J. Melloy,* Jay S. Bybee, and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Bybee; Dissent by Judge Ikuta

SUMMARY**

Tax

The panel reversed a Tax Court decision involving the debt limit provisions for unmarried co-owners seeking to deduct mortgage interest for their qualified residence.

The panel held that the debt limit provisions of 26 U.S.C. § 163(h)(3) apply on a per-taxpayer basis to unmarried co- owners of a qualified residence. The panel remanded for determination of the proper amount of interest that taxpayers are entitled to…

Opinion by Judge BYBEE; Dissent by Judge IKUTA.

OPINION

This is a tax dispute brought by two unmarried co-owners of real property, Bruce Yoss and Charles Sophy. For the 2006 and 2007 tax years, Voss and Sophy each claimed a home mortgage interest deduction under § 163(h)(3) of the Internal Revenue Code, which allows taxpayers to deduct interest on up to $1 million of home acquisition debt and $100,000 of home equity debt. After an audit, the IRS determined that Yoss and Sophy were jointly subject to § 163(h)(3)’s $1 million and $100,000 debt limits and thus disallowed a substantial portion of their claimed deductions. Voss and Sophy challenged the IRS’s assessment in Tax Court, arguing that the statute’s debt limits apply per taxpayer such that they were entitled to deduct interest on up to $1.1 million Of home debt each. The Tax Court agreed with the IRS.

We are now called upon to decide how § 163(h)(3)’s debt limit provisions apply when two or more unmarried co-owners of a residence claim the home mortgage interest deduction. Although the statute is silent as to unmarried co-owners, we infer from the statute’s treatment of married individuals filing separate returns that §…

dissenting:

Today the majority interprets the Tax Code to allow unmarried taxpayers who buy an expensive residence together to deduct twice the amount of interest paid on the debt secured by their residence than spouses would be allowed to deduct. While the language of the relevant statute is ambiguous, the IRS has offered an interpretation that limits unmarried taxpayers in this situation to deducting the same amount as married taxpayers filing jointly. Because we should defer to this reasonable interpretation by the IRS, I dissent.

I

The Internal Revenue Code provides that interest paid or accrued on indebtedness shall generally be allowed as a federal tax deduction. 26 U.S.C. § 163 (a). Deductions for personal interest paid or accrued are generally disallowed. Id. § 163(h)(1). Congress made an exception from this disallowance for “qualified residence interest (within the meaning of [§ 163(h)(3)]).” Id. § 163(h)(2). “Qualified residence interest” is defined in § 163(h)(3) as follows:

The statute defines “qualified residence” as “the principal residence” of a taxpayer and one other selected home used as a residence. Id. § 163(h)(4)(A)®. The term “acquisition indebtedness,” is…