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Abstract

Despite the seemingly simple language of the statute, the interpretation of the home mortgage interest deduction has recently garnered much attention as the Internal Revenue Service and the courts grappled with its application to unmarried co-owners of a residence. In determining whether the indebtedness limitations apply on a “per-residence” or “per-taxpayer” basis, the Internal Revenue Service, the Tax Court, and the Ninth Circuit have conducted in-depth analysis of the language of the statute, the statute’s legislative history, implications of related tax provisions, social and policy concerns, and financial consequences, and have consulted almost every canon of statutory interpretation. This Article examines the legislative history and evolution of the present qualified residence interest deduction and analyzes the differing interpretations of the indebtedness limitations and the ultimate effect of the differing interpretations on taxpayers with different marital status. Also examined is the Internal Revenue Service’s surprising announcement that it will follow the Ninth Circuit’s holding in Voss v. Commissioner that the indebtedness limitations apply separately to each unmarried co-owner of a residence. This Article concludes with a discussion of possible options for future legislation with regard to the qualified residence interest deduction, repealing or limiting the current deduction or replacing the deduction with a tax credit.

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