750K limitation rules for multiple unmarried owners of principal residence

[Lindas0248]

I own main home with unmarried friend.  We are both on mortgage and both contribute to mortgage payments. I contribute 40%.  My friend contributes 60%.   Average value of loan is 600K.

In 2023, I purchased a second home with an average balance of 200K.  I pay 100% of that mortgage and am sole owner of mortgage and property.

My question is how to determine if I am subject to 750K limit. 

- Can I use 40% of 600K for main home and 100% for second home - which puts me below the 750K limit and therefore not limited or-

- Must I take 100% of 600K and 100% of 200K to determine my mortgage interest limitation.  

[Mike9241]

i would say 40% of the first loan + the $200 on the second loan. But whose name is on the 1098-MTGE. If it's you then 

• Your housemate: Since they didn’t receive a Form 1098, they should list the amount of mortgage interest on Schedule A (Form 1040), line 8b, as “Home mortgage interest not reported to you on Form 1098.”
  • They must also include your name and address as the person who received the Form 1098 reporting the interest they paid.
  • If your housemate files a paper return, they should attach an explanation of how much interest each of you paid and print “See attached” next to line 8b.

[Lindas0248]

Both names are on the 1098 and the mortgage.  I would therefore assume from your answer that I can take f

40% of the 600K and 100 % of the 200K and therefore have not limitations since using this example my total average mortgage for the two mortgages would be 240K plus 200K and therefore below the 750K and therefore no limitation of my total interest paid.  Please clarify if I am interpreting your response correctly and whether having both names on 1098 makes a difference in your response.  Thank you.

[PatriciaV]

Yes, you are correct that you would apply 40% to the information on Form 1098 for the first mortgage. The co-owner would report 60%. Since both names are on the 1098, no special treatment is necessary beyond the allocation.

[Lindas0248]

I am not sure your answer included my concern about the 750k limitation test.  Are you agreeing that I can take 40% of the 600k loan balance of the mortgage we share and 100% of the loan balance of my individual loan in second home to determine if I exceed the 750k limit?

[Vanessa A]

Yes, since you are not married, the limit applies to you on a per taxpayer basis.  So, your personal limit is $750K for ALL mortgages and prorated portions of your joint mortgage under current tax law.  The case below was argued when the limit was $1,000,000, but the $750k limit did not change how the law was applied only the amount that it was limited to. 

"The Internal Revenue Service will follow the Voss opinion and will apply the § 163(h)(2) and (3) limitations on a per-taxpayer basis, allowing each taxpayer to deduct mortgage interest on indebtedness of up to $1 million and $100,000, respectively, on a qualified residence." Voss v. Commissioner, 796 F.3d 1051 (9th Cir.2015), rev’g Sophy v. Commissioner, 138 T.C.204 (2012)

(Edited 3/5/2024 @ 12:35PM PST) @Lindas0248

[Lindas0248]

Vanessa A:  I appreciate your info.  I; however, don't understand whether I have to use the entire 600K balance of the loan  for the limitation test or whether I can use the 40%( portion of my mortgage payments in 2023)  of the 600K outstanding balance.   Another way to ask this is to know whether I should use 240K or 600 K for line 2 part 2 of the deductible home mortgage interest worksheet.  Since this value on line 2 part 2 is obtained from "beginning of year balance on home debt originating after Oct 13, 1987 and before December 15, 2017, I would assume I would take 40% of all values in that section.    i don't get a good understanding of that from the Voss v. Commissioner case you sent.  Please help me.  Thanks.

[Vanessa A]

You would use the $240k for the 40% of the loan that you share and then if you have another home with a higher balance that you own 100% of,  you would add that home's value to it. 

So basically, when you are calculating your $750k limit, you will ONLY include the amounts that YOU personally are paying.  So if you are paying 40% of one and 100% of the other, then you would include only the 40% of the one and then 100% of the other.  Whatever portion the other owner is paying, you would not count towards your $750k limit.