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drscott... a tax tip for couples who own property jointly and aren't allowed to marry.
The income tax code favors married couples generally, since rates are progressive (marginal rates increase with increasing income.) Two people who file jointly pay at a special rate which is higher than if they filed separately but split their income and deductions evenly, but lower than the rate paid by a single person with the same pooled income. So when a married couple files jointly and each has similar high incomes, they can actually end up paying more (the "marriage penalty"), but if one has a much lower or no income the couple will pay considerably less. It is as if some of the high earner's income had been transferred to the low earner's account for purposes of taxation, and the low earner's low tax rate is used for some of the high earner's income.
We, as gay people, don't have access to this tax benefit, since we are not allowed to file jointly, even when our marriages are acknowledged by, say, Massachusetts. However, there is a way to achieve some of the tax benefit if you own real estate jointly.
Normally any jointly-owned property which generates income or deductions has those taxable items divided between the owners in accordance with their share of ownership, and that is always true of property owned as tenants in common, where in theory one owner could sell their interest separately. But the status of joint tenancy, which is deeply embedded in common law, is that it is seen as an undivided interest -- one joint owner can't force sale of the property. So the case law supports a deduction of mortgage interest and property taxes by the joint owner who actually pays them, under the theory that it is necessary for one owner to pay the full amounts due to protect his/her undivided interest in the whole.
This opens a way for gay couples to reduce their total tax bill by allowing the higher earner to pay all of the mortgage and property tax bills on their jointly-owned property, and they can change this strategy as their incomes vary. As long as the low earner is careful to pay half of the mortgage principal payments, their ownership stakes will not be affected. While the tax savings using this strategy are not as great as would be obtained by being able to file as married, it can save thousands over what they would owe otherwise. If you do your own taxes via a program like Turbotax, it is particularly easy to do a what-if model which shows how much you would save by shifting these deductions to the higher earner.
The income tax code favors married couples generally, since rates are progressive (marginal rates increase with increasing income.) Two people who file jointly pay at a special rate which is higher than if they filed separately but split their income and deductions evenly, but lower than the rate paid by a single person with the same pooled income. So when a married couple files jointly and each has similar high incomes, they can actually end up paying more (the "marriage penalty"), but if one has a much lower or no income the couple will pay considerably less. It is as if some of the high earner's income had been transferred to the low earner's account for purposes of taxation, and the low earner's low tax rate is used for some of the high earner's income.
We, as gay people, don't have access to this tax benefit, since we are not allowed to file jointly, even when our marriages are acknowledged by, say, Massachusetts. However, there is a way to achieve some of the tax benefit if you own real estate jointly.
Normally any jointly-owned property which generates income or deductions has those taxable items divided between the owners in accordance with their share of ownership, and that is always true of property owned as tenants in common, where in theory one owner could sell their interest separately. But the status of joint tenancy, which is deeply embedded in common law, is that it is seen as an undivided interest -- one joint owner can't force sale of the property. So the case law supports a deduction of mortgage interest and property taxes by the joint owner who actually pays them, under the theory that it is necessary for one owner to pay the full amounts due to protect his/her undivided interest in the whole.
This opens a way for gay couples to reduce their total tax bill by allowing the higher earner to pay all of the mortgage and property tax bills on their jointly-owned property, and they can change this strategy as their incomes vary. As long as the low earner is careful to pay half of the mortgage principal payments, their ownership stakes will not be affected. While the tax savings using this strategy are not as great as would be obtained by being able to file as married, it can save thousands over what they would owe otherwise. If you do your own taxes via a program like Turbotax, it is particularly easy to do a what-if model which shows how much you would save by shifting these deductions to the higher earner.
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no subject
Date: 2004-09-27 05:02 pm (UTC)no subject
Date: 2004-09-28 08:03 am (UTC)