Married Filing Separately Statute Not Open for Interpretation

Post Date: 7/12/12
Last Updated: 7/12/12


Cross References
• Bronstein, 138 T.C. No. 21, May 17, 2012

A taxpayer obtained a $1 million mortgage to help finance her purchase of a home. Although she was married, she paid the mortgage only with her own funds. The taxpayer elected to file Married Filing Separately for the tax year in question and deducted the interest paid on the entire $1 million of mortgage indebtedness. The IRS said the mortgage interest deduction was limited to a deduction for interest paid on $500,000 of home acquisition indebtedness plus interest paid on $50,000 of home equity indebtedness as a result of her filing status.

There was no dispute that the property met the definition of a qualified residence and that the mortgage interest paid by the taxpayer was qualified residence interest because it was paid on acquisition indebtedness and home equity indebtedness secured by the property. There was also no dispute that IRC section 163(h)(3)(B)(ii) and (C)(ii) limits indebtedness to $550,000 for each spouse filing a separate tax return.

However, the taxpayer claimed she should be allowed to deduct interest paid on the entire $1 million of indebtedness because the Married Filing Separately limitations were enacted by Congress so that, collectively, a married couple filing separately could claim no more than $1.1 million of aggregate indebtedness across both of their returns. The taxpayer claimed Congress did not intend to limit any one return to $550,000 of indebtedness, provided the aggregate of both returns do not exceed the $1.1 million limit.

The Court disagreed with the taxpayer. The statute clearly states that a married individual filing a separate return is limited to a deduction for interest paid on $500,000 of home acquisition indebtedness and $50,000 of home equity indebtedness. The taxpayer has not offered any unequivocal evidence of legislative purpose which would allow the Court to override the plain language of the statute.
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