The Tax Reform Act of 1986 totally changed the tax-deduction rules for deducting interest expenses.

First, the act eliminated tax deductions for what it defined as personal interest, such as the interest paid on personal credit cards.

Second, the act placed rules and ceilings on personal mortgage interest deductions.

The idea behind the changes was to broaden the tax base so that the lower tax rates in this new tax law would continue to generate the same amount of cash for the government.

And as a side benefit for lawmakers, now that they have a much broader base from which to collect tax money, any increase in tax rates produces a windfall in tax collections compared with what was available before the new law. And that’s precisely what happened shortly after the enactment of the Tax Reform Act of 1986.

Now, all these years later—and thanks to the IRS and the Ninth Circuit Court of Appeals—single taxpayers living together or otherwise co-owning homes have new rules and higher ceilings (a broader base for tax deductions) that can double their mortgage interest tax deductions. ... Log in to view full article.