Tax benefit for couples owning separate homes ? Greg Zavitz ...

By Tom Kelly
Inman News?

Before the current, rather liberal, tax advantages for homeownership, many older people delayed or declined marriage or remarriage ?for tax purposes.?

That?s because each individual over 55 was entitled to a one-time tax exclusion of $125,000 on the sale of a principal residence.

Because many former spouses entered into a new relationship already owning a home, they usually chose to sell one of them before returning to the altar. That way, they could obtain the $125,000 benefit twice; a married couple got it only once.

I thought about that ?marriage penalty? recently when the U.S. Tax Court ruled that the cap on mortgage interest deductions applies in the same way to unmarried couples as it does to married couples, affirming a ruling by the Internal Revenue Service assessing a tax deficiency against a gay couple who jointly own two houses.

The court rejected the petitioners? argument that Congress intended to impose a ?marriage penalty? on married couples.

Under the Internal Revenue Code, mortgage interest is deductible from income, but not to the extent that it is attributable to an outstanding mortgage principal balance of more than $1 million. Similarly, interest payable on a home equity line of credit that is used to finance home improvements is deductible, but not to the extent that it is attributable to an outstanding loan balance of more than $100,000.

In this case, the same-sex couple jointly purchased houses in areas of Los Angeles and Palm Springs. They used the Palm Springs house for vacations and weekends and the L.A. home as their primary residence.

The outstanding mortgage principal balances for the two houses exceeded $2 million in 2006 and 2007, and the outstanding principal balance on a joint home equity loan exceeded $200,000.

In filing their federal income tax returns for 2006 and 2007, they each claimed interest deductions for interest attributable to a $1 million mortgage balance and $100,000 home equity loan balance, effectively asserting that each could use the full interest deduction allowance.

Read the rest of this article here:?http://lowes.inman.com/newsletter/2012/04/06/news/184189

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