TaxProfBlog: Lesson From the Tax Court: No §163 Deduction From Foreclosure Proceeds (July 5, 2022)


Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From the Tax Court: No §163 Deduction From Foreclosure Proceeds,” which discusses the tax court decision in Ronald W. Howland Jr. and Marilee R. Howland v. Commissioner (2022). The article begins as follows:

It’s not just Death and Taxes that are certainties in life.  Having lived through the economic downturns in 1973, 1981, 2001, and 2008, I now believe we can add Recessions to the list.  And another one seems to be coming.  So this may be a good time to pay attention to Ronald W. Howland, Jr. and Marilee R. Howland v. Commissioner, T.C. Memo. 2022-60 (June 13, 2022) (Judge Weiler), where we learn some of the obstacles taxpayers face in taking a §163 interest deduction when foreclosure proceeds only partially pay off a loan balance that includes principal and accrued interest.

In Howland, the Court did not permit any §163 deduction.  This week and next I’m going to try something new and compare the Tax Court case with a recent Circuit Court case.  I think the comparison is instructive.  This week, we compare Howland to the recent 9th Circuit opinion in Milkovich v. U.S. 24 F.4th 1 (9th Cir. 2022), where the 9th Circuit did permit a §163 deduction from foreclosure proceeds.  Both Howland and Milkovich arose from the Great Recession.  Looking at the similarities and difference of the two cases gives us the lesson, which is in part a cautionary tale on how at least some of the obstacles to deduction may be self-created.

Click here to see the full article: “Lesson From the Tax Court: No §163 Deduction From Foreclosure Proceeds”

Posted by Nicholas Chuckas, Associate Editor, Wealth Strategies Journal

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