One of the tax deductions available to individuals and couples who own their home is the mortgage interest deduction. This deduction can save homeowners who owe taxes a substantial amount, especially if they have a mortgage with a high interest rate. An announcement by the IRS last week will provide some homeowners with even larger savings by doubling their mortgage interest deduction. However, in order to qualify, the homeowner must be living with a partner but be unmarried.
Some are calling this new regulation another addition to the marriage penalty, that group of regulations that appear to be designed to punish those who get married. Here are two other regulations that are a part of the marriage penalty:
- Single individuals do not reach the 28% tax bracket until they have made $91,150 a year, but married couples are moved into that bracket when their income reaches $151,900, which is much less than double the single payer limit.
- When a single payer reaches $258,250 of adjusted gross income, their itemized tax deductions are affected. For married couples, though, that limit is $309,900, which is again less than double the limit for single taxpayers.
The change in the mortgage interest deduction rules comes after several years' worth of legal cases. A tax court ruled in 2012 that mortgage interest was deducted on a per-household basis, but the Ninth Circuit Court of Appeals later reversed that decision, stating that mortgage interest should be considered on a per-taxpayer basis. This effectively means each co-owner can take the full amount of the deduction, thus doubling the mortgage interest tax deduction for unmarried couples.
Moneytips can help you refinance your existing home loan.