Are you single and own an expensive house?  You may want to stay that way!

Last week, the US Circuit of Appeals changed the way we treat the mortgage interest deduction for co-borrowers of expensive houses.

The mortgage interest deduction is a key tax deduction for Americans.  The rules around the mortgage interest deduction are:

• You can deduct interest on up to $1.1million of loans
• The home has to be a qualified residence (i.e. your home)

In 2012, the US Tax Court had ruled that the $1.1million limit was per residence.  Meaning, if you had two unmarried people go in together on a really expensive house, you could only deduct interest on the first $1.1million of loans and the rest was non-deductible.  (Even at low interest rates, that could equate to $50k or more of deductions that just get thrown away!)

But last week, the 9th Circuit of Appeals reversed* the Tax Court decision and has ruled that the $1.1mm limit is per taxpayer and not per residence.  Thus for a house owned by two unmarried people, each person could take an interest deduction for $1.1mm of loans (so, combined, they could deduct the interest on a home that had $2.2 million of mortgages on it).  Note: People filing Married Filing Jointly are considered one taxpayer and thus the $1.1million limit still applies to those returns.

Who does this help?

• Unmarried co-borrowers of expensive homes who had previously lost a large tax deduction

Who does this hurt?

• The coffers of the U.S. Treasury
• Possibly wedding planners for the rich?!

As always, before you ditch those wedding plans, please speak to your Enrolled Agent to see how this decision specifically impacts you.

* BRUCE VOSS V. CIR, 12-73257

New Filing Deadlines starting for Tax Year 2016 - Congress did something right!

Do you have to file an Extension each year because your K1 doesn't come until May?  Do you get confused because you have to file your Foreign Account Form in June but your Extension is good until October?

It is rare that this blog applauds Congress, but last week they passed HR 3236 which makes some sensible changes to return filing deadlines and information returns.

Key Filing Date Changes*

• Partnership Returns due on March 15th - this due date is moved up by a month, so hopefully the K1s will be in the mail no later than March 16th (if the Partnership files on time) which means YOU can file on time!
• C Corporation Returns due on April 15th - you get an extra month to file these returns because there isn't much generated from a C Corp return that is going to impact another's income tax return.
• S Corporation Returns due on March 15th - no change here because the S Corp generates a K1 that the individual needs to file their tax return.
• FBAR (Form 114) - now due on April 15th AND you are now allowed a six-month extension (so if your personal return is extended until October 15th you can file your FBAR at that time too).

Note: California does not automatically conform to these dates, so they will have to pass separate legislation to conform.

Key Form Changes

• Your Mortgage Interest statement (Form 1098) will now show the amount of outstanding principal, the  loan origination date, and the property address. (The individual taxpayer may not see much value in these figures, but your tax preparer is going to be thrilled to have this additional information!)

These changes don't start until 2017 (for Tax Year 2016) but this is good news for taxpayers and hopefully a harbinger of more good tax news to come from Congress!

* Note: these dates are for calendar year filers only.  Fiscal year filers have different filing dates and there is a special rule for C-Corps with a June 30th fiscal year end who have to continue to file within 3.5 months of their year end until 2025 (that is not a typo).