9th Cir. Mortgage Interest Deduction for Bankrupt Couple OKs

By Jeff Montgomery (March 2, 2022, 8:17 p.m. EST) — A split opinion from a Ninth Circuit panel released Wednesday reignited a Washington state couple’s challenge to the Internal Revenue Service’s denial of a mortgage interest deduction of $114,688 stemming from the 2011 short sale of their home by CitiMortgage after their release from Chapter 7 bankruptcy.

In the decision, Circuit Judges Jay S. Bybee and Daniel P. Collins found that under the ordinary rules that apply to a short sale involving the repayment of a debt without recourse – a debt that prohibits any recovery beyond sale proceeds – Lisa Milkovich and Dang Nguyen were entitled to deduct the amount that CitiMortgage cut…

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