Jackie StevensJackie Stevens

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Posted 9/29/2016

Another Good Reason Not to Get Married, Courtesy of the IRS

Monday, August 22, 2016

New York (August 19, 2016)

​By Ben Steverman


(Bloomberg) There are plenty of reasons to get married. Your taxes may not be one of them.

Some couples—generally those with one person who earns far more than the other—will see their tax bills fall after marriage. But for two well-paid professionals, tax bills can soar post-marriage, as their combined incomes put them in the highest tax brackets.

And well-off couples just got another financial incentive to cancel the wedding. Unmarried couples can now deduct effectively twice as much of their mortgage and home interest on their tax returns, thanks to a change this month by the Internal Revenue Service.

The IRS had little choice: A year ago, it lost a California couple's lawsuit challenging its mortgage-deduction rules. Bruce Voss and Charles Sophy were registered as domestic partners and owned two properties together in California, in Beverly Hills and in Rancho Mirage near Palm Springs. In 2006 and 2007, they had about $2.7 million in debt on their houses, and they were paying a combined interest of about $180,000 a year.

The law says taxpayers can deduct the interest on up to $1 million in mortgage debt and $100,000 in home equity financing. Voss and Sophy each tried to deduct this full amount, but the IRS audited their returns and said the $1.1 million limit had to be applied on a per-residence basis—meaning they had to share the deduction limit and lost the right to $198,415 in deductions over two years. The men sued, but a tax court sided with the IRS. They appealed to the U.S. Court of Appeals for the Ninth Circuit, which last August overturned the ruling and found, based on a close reading of the tax code, that the men should each get their own $1.1 million deduction limit.

This month, the IRS “acquiesced” in that ruling—applying it not just to Voss and Sophy and other taxpayers under Ninth Circuit jurisdiction but to all taxpayers nationwide in similar circumstances.

The IRS's new position on the mortgage deduction could be a boon to other unmarried couples who co-own property and split mortgages in expensive areas of the country, such as Manhattan or San Francisco, where median home prices top $1.1 million, according to Zillow.

But it could also pose a dilemma if those couples are planning a wedding: Get married, and you’re limited to deductions of $1.1 million in mortgage and home debt.

“If you stay unmarried, you can deduct up to $2.2 million,” said ReKeithen Miller, a financial planner at Palisades Hudson Financial Group, based in Atlanta. “Not to say you want to let tax policy dictate your personal life, but it’s another thing for them to consider.”

The ruling could also apply to friends or family who want to buy real estate together.

Still, buying real estate with friends, family or an unmarried partner is risky and can get messy if you stop getting along or decide to break up. (A 2006 movie starring Jennifer Aniston and Vince Vaughn centered on this very scenario.)

“When you’re an unmarried couple, you don’t have protections,” said Janis Cowhey, a lawyer and partner at Marcum, an accounting and advisory firm in New York. “As far as the law is concerned, you’re legal strangers.”

Property co-owners can hire lawyers to write agreements that set out some rules. Co-habitation agreements let unmarried couples agree on all aspects of the relationship—including inheritance rights, medical decisions, property and finances. Ownership agreements are more narrowly focused on how to handle a particular property after a death or breakup, but they can still be complicated documents, Cowhey said, specifying who gets to stay in an apartment or exactly how to sell the property.

“They seem like insane details, but if you’re in the middle of a breakup, they seem like important details,” Cowhey said. “You’re never going to agree on a real estate broker.”

by Jackie Stevens at 12:37 P

Thursday, July 28, 2016

​July 25, 2016

By Daniel Hood

Looking for a gift to give after all those June weddings? How about some solid tax advice for the newlyweds?

Taxes may not be top-of-mind for most new couples, but there are some important tax issues they should be aware of, so the IRS put together the following set of tips.

A slideshow version of this story is available here.

  • New names? Whether one of the spouses takes the other’s name or not, the names and Social Securities on their tax return must match their Social Security Administration records – so if any names are changed, they’ll need to report it to the SSA with Form SS-5, Application for a Social Security Card. The form is available on www.ssa.gov, or by calling (800) 772-1213.
  • Congratulations – you’re in a new bracket! The spouses’ new marital status needs to be reported to their employers on a new Form W-4, Employee's Withholding Allowance Certificate. And the IRS was quick to point out that the new couple’s combined income may move them into a higher tax bracket.
  • Yes, there’s an Obamacare angle. If either spouse bought a Health Insurance Marketplace plan got an Advanced Premium Tax Credit this year, they need to report any changes in circumstance, like income or family size. They should also alert their Marketplace is they moved out of its area.
  • Crossing the threshold. If either of the newlyweds is moving, they’ll want to let the IRS know, with Form 8822, Change of Address. (They should probably also let the Post Office know, too.) Don’t make them come looking.
  • Married? Filing jointly? If the couple is married as of December 31, that’s their marital status for the whole year for tax purposes – and that means they need to decide whether to file jointly or separately. Which one is better depends on the couple’s individual circumstances, so they’ll want to check out both possibilities.
  • New forms. Combined financial lives may mean a higher tax bracket, but they can also mean more benefits from itemizing – which would mean claiming those deductions on a Form 1040, as opposed to a 1040A or 1040EZ. This would be a good area for a friendly tax advisor to offer some advice …
  • More IRS resources. The tax services offer a host of resources for new couples, including videos (like this one on “Getting Married”) and more. No need to send them a thank-you card.