Real Estate Tax Implications for GLBT Couples
This is a guest post from Jeff Hammerberg, the founder of GayRealEstate.com, the largest company in the nation representing the rights of queer home buyers and sellers. These are his words’¦
The entire system of USA taxation favors real estate ownership in ways that make property owners green with cash, and investors in other kinds of tangible or intangible assets green with envy. For example, ownership of artwork, commodities, or stocks and bonds conveys few deductions – whereas real estate offers everything from mortgage interest deductions to breaks for those who reinvest capital gains from the sale of a residence.
But before we get too excited about our tax write-offs, it is important to remind ourselves that while the system favors real estate, the more overriding and dominant paradigm in the USA is that it favors all things heterosexual. If you happen to be gay, an entire menu of sweet treats at tax time may be removed from the table – or made more difficult to get.
Consider, for instance, the basic documentation required to file our state and federal income taxes. Nobody – gay or straight, liberal or conservative – believes that the complex and convoluted forms are user-friendly, and everyone agrees that they could be simplified and streamlined. If you happen to be a GLBT citizen paying taxes as a member of a “domestic partnership”, however, the spaghetti bowl of rules, regulations, guidelines, and protocols reaches a whole different level of mess and stress. The paperwork becomes so exponentially more bizarre and frustrating for gays that it makes tax filing for “straight” couples seem downright – to invoke an unintentional pun – straightforward.
We can first pause and celebrate the fact that this year there are more states in the nation that accept tax returns from GLBT couples. Thanks to legal acknowledgement of same-sex couples, it is now possible to file state income tax forms in California, Connecticut, Massachusetts, New Jersey, Vermont, and the District of Columbia. But to do so – and this is where it gets really bogged down in red tape – each member of the domestic partnership has to first fill out an individual IRS tax return. That makes sense, because the federal government doesn’t recognize these GLBT partnerships. But what may leave couples – and their tax accountants – scratching their heads in disbelief and frustration is that next, the two individual taxpayers have to fill out another IRS tax return, pretending to be an officially authorized and legal couple. The return is unacceptable as far as the IRS is concerned, of course, but without making this mock return you cannot file your state taxes.
Kevin McCormally, editorial director of Kiplinger’s Personal Finance, recently pointed out some of the unexpected problems faced by GLBT couples at tax time on the NPR television show Nightly Business Report. He explained it this way:
“Because federal law forbids these couples to file jointly, the states start their tax computations with a joint Federal return. That means same-sex couples basically must complete a minimum of four tax returns. They use that fantasy return as the jumping off point to prepare a joint state tax return.”
In other words the make-believe return is necessary in order to help make the paperwork of the federal government jive with that submitted to the state government.
If the tax money was believe it might not be so bad, and it might make for a cute skit on Saturday Night Live. But the reality for GLBT couples is that while the tax authorities require this fantasyland filing system, the very real and factual consequences are entirely legally binding and financially relevant. Plus they mean that you have to invest lots more time filling our your returns – while running a much higher risk of sending up a red flag (or rainbow colored one as the case may be) that will incur a dreaded audit. And if you hire a professional to prepare your taxes, you can expect to pay as much as four times the going rate – since you have to fill our four times as much paperwork.
The bottom line is that the typical tax breaks for real estate enjoyed by the majority of Americans are limited for GLBT couples. And even when you do qualify for them, they are harder to verify and can be a huge hassle at filing time.
But the good news – which is not negated by current tax laws – is that ownership of real estate still pays off with a much greater return than other investment vehicles. Interest rates have been slashed six times in as many months. Buying and building a home has not been this affordable in years, and the potential for equity appreciation is extraordinary.
More FHA insured loans are available. Veterans are eligible for no-money-down fixed rate loans. Recent emergency changes that relaxed limits on conventional loans allow you to borrow almost twice as much at the same rates. The outlook is wonderful. Meanwhile, keep reminding your elected officials that GLBT taxpayers deserve true equality under the law.
For experienced Realtors to help you understand and take advantage of the perks of property ownership, visit www.GayRealEstate.com or call toll free 1-888-420-MOVE (6683). This global online GLBT real estate resource is the largest in the world.
More about Jeffery Hammerberg
Jeffery Hammerberg is Founder and President of Gay Real Estate, Inc. – the nation’s largest group of companies connecting gay & lesbian home buyers and sellers to gay, lesbian and gay friendly real estate agents. Since 1997, Hammerberg has created a virtual real estate marketplace for the LGBT community.
I’m always a nervous wreck about tax issues. This is the first year I filed with my partner as a dependant- she is a stay at home mom with no income- and she had nothing to declare. Whenever issues in gay taxes get mentioned, I get that fear that IRS will pull up in the driveway any minute….