Today, we published an op-ed in the Journal News, the local paper in the Hudson Valley area of New York, calling for an end to the “Marriage Penalty” in the Home buyer Tax Credit. We have actually already asked local members of Congress to look into the issue, and the feedback we’re getting is that they see the problem and are trying to figure out how to solve it.
We have some background on the issue here, and a video that discusses how the Home Buyer Tax Credit impacts married couples versus unmarried couples here.
What can you do to help? Our contacts in the government say that it would help enormously if we could put a human face on the issue, to find a married couple who is in the process of looking to buy a home, but who is discouraged because they will not be able to claim the Home Buyer Tax Credit because of the Marriage Penalty.
If you’re in that position, or you know someone who is, either post your story here or email us.
And if you want to join our Facebook cause to end the Marriage Penalty, then go here.
The Problem
The basic problem is this: the Home Buyer Tax Credit is designed to incentivize home purchases this year, and it should have a significant impact. With the increased income levels, Goldman Sachs estimates that virtually all first-time home buyers and up to 70% of long-time homeowners would be eligible to get a tax credit.
But the impact is going to be undermined because thousands of married couples will not be eligible due to a very restrictive reading of the legislation by the IRS. Why? Because the IRS will only allow married couples to claim the credit if both spouses qualify for the same type of credit in their own right, even if the couple would get a tax credit if they were unmarried. Married couples are tested together, and must both be eligible. This is not the case for unmarried couples, who are tested individually such that if one does not qualify, the other can still get a credit.
Some examples of how the “Marriage Penalty” plays out:
- If the husband qualifies as a first-time home buyer, or a long-time homeowner, and the wife does not qualify as either, the married couple is not eligible because the ineligibility of the wife. If the couple was unmarried, that husband would be eligible to claim a up to an $8,000 or $6,500 tax credit.
- If one spouse qualifies as a first-time home buyer, and the other spouse qualifies as a long-time homeowner, the married couple is not eligible because the spouses are not eligible for the same type of credit. If the couple was unmarried, they could both claim a home buyer tax credit: one would be eligible for up $8,000 and the other $6,500. They could split one tax credit between the two of them.
- Even if both spouses qualify as long-time homeowners, they both have to qualify by both living in the same home that they owned together for five consecutive years out of the last eight. If one of them lived in one home for five out of eight years, and the other in a different home for five out of eight years, they are not eligible. If the couple was unmarried, they could both claim up to a $6,500 long-time homeowner tax credit.
In all three cases, a married couple is ineligible for a home buyer tax credit, even where the same people with the exact same ownership history would be eligible for a full home buyer tax credit if they were unmarried partners.
Impact
This “Marriage Penalty” particularly impacts the following type of married couples:
- Newly married couples where one spouse already owns a home, but the other spouse does not. In such cases, even if one spouse would qualify as a long-time homeowner and the other as a first-time home buyer, the married couple itself is not eligible.
- Newly married couples where both spouses owned their homes before getting married. In such cases, even if both spouses would qualify as long-time homeowners, they did not live in and own the same residence, so the married couple is not eligible.
- Long-married couples in which only one spouse is the titled owner of the property. In such cases, the spouse on the title might qualify as a long-time homeowner, but the other spouse would not, so the married couple would not be eligible.
Essentially, the only types of married couples who would be eligible to take the credit would be married couples where both spouses are qualifying first-time home buyers, or married couples where both spouses have owned in and lived in the same home for at least five consecutive years out of the last eight.
What Should Be Done
Clearly, Congress did not intend to render millions of American married couples ineligible for any type of tax credit, even in cases where both spouses would qualify on their own and in cases where unmarried couples are eligible to claim tax credits. Marriage is the cornerstone of our society, and the IRS should not be exacting a “Marriage Penalty” that undermines an important economic recovery program.
To fix this, either Congress needs to revise the legislation or the IRS has to revise its treatment of married couples to allow for eligibility for a tax credit where both spouses would qualify for a tax credit in their own right if they were single or unmarried partners buying together:
- If one spouse is eligible for a tax credit, and the other spouse is not eligible based on ownership history, then the married couple would be eligible for up to one-half of the applicable tax credit. Indeed, the IRS now allows for married couples filing separately to claim one-half of the tax credit where an otherwise fully-eligible spouse is above the income restrictions. Why is it okay for a spouse to get one-half of the credit when the other spouse is ineligible on income guidelines, but not when the other spouse is ineligible on ownership history requirements?
- If one spouse is eligible as a first-time home buyer, and the other is eligible as a long-time homeowner, the married couple would be eligible for the lesser of the two tax credits, the $6,500 long-time homeowner credit. Why should two people who are both eligible for a tax credit be rendered ineligible because they are married?
- If both spouses would be eligible for the long-time homeowner tax credit if they were single, then the married couple should be eligible for the long-time homeowner tax credit even if they did not qualify for owning the same home. Why should two people eligible for a long-time homeowner credit for their own homes be penalized because they get married and want to buy something together?
If the government really wants to spur buyer demand in the real estate market, we cannot exclude the huge population of married couples from claiming the credit. If the IRS is not able to revise its interpretation of the law, Congress should explicitly amend the law to fix the “Marriage Penalty” by explicitly allowing for equitable treatment of married and unmarried couples.
Let us know your thoughts on this.
Does seem unfair. I am on facebook end the marriage penalty group.
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THANK YOU!!! I don’t understand the reason for the penalty. I qualify for the longtime homeowner while my husband qualifies for the first time homebuyer credit. Of course, that means we are ineligible.
This is absurd.
Hi @M, I completely agree. Thanks for the support.
HI,
I have joined your facebook cause and find your website very helpful in answering my questions. This law is completely unfair. We put our home on the market in November just after the move up credit was announced and just recently sold it. Now we have found out we do not qualify for this move up credit. I have owned the house for 9 years. My wife and I have been married for 3 1/2 years and she has lived in the house for 5 years, furthermore she has never owned a home prior to moving in with me. But because she has not lived in and owned the my house for 5 years we are being unfairly eliminated from eligibility for the credit. Lets get this law changed, looking forward to the updates!
Hi @Barry, I couldn’t agree more. Thanks for joining the cause, and stay tuned for updates.
Can I ask you to also post it as a response to this post about who is falling victim to this Marriage Penalty. The response we’ve gotten from the people in the government we’ve spoken to indicate that they want to see a human face on this. We’re collecting those stories there.
Well, my husband and I got married two years ago. We met five years ago, I was renting, he owned his home by then. I moved in his house after two years, and got married a year later. We are buying a home together now. So, if we are not married, I would qualify for first home buyer, get $8000 tax credit, and he would get $6500 as repeated home buyer. But now since we got married, we qualify for nothing.
Is this discrimination for married couple? I thought government to encourage people to get married to stabilize the society.
So if two singles make $80,000 each per year, better stay single and live together. Because if they are single, they will fall into 25% tax bracket; if they are married, they will fall into 28% tax bracket. And then they have a baby, one can claim tax deduction. What does that do for the society? Doesn’t baby deserve to have a FAMILY? Where is American family value?
We got to END MARRRIAGE PENALTY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
My husband and I were told if he purchased a home in his name only he would qualify for the first time home buyer credit, as I had owned a home prior to getting married to him so I did not qualify, but once we went to file our taxes since he was married to me he didn’t not get to claim the credit even though my name isn’t on the mortgage. I think since he owns the home, and is first time home buyer not me, he should have gotten the credit as the loan officer and our realtor had told us falsely.
HI @K, thanks for posting. That’s a pretty terrible story, I’m sorry to hear it. It’s particularly bad if your agent and loan officer advised you that you would qualify.
Yeah… the wife and I are in the same fix. She would qualify for nothing because she owned her parents’ home for more than 5 years, but did not occupy it. I would qualify for the move-up because I owned and occupied my home for 6 years before we sold it last October.
We got married in June and didn’t buy our new home until January. So I would be eligible for $6500 on my own and my wife nothing, but since we’re married we get zilch.
Ouch.
Hi @Brad. Yes, “ouch” is correct….
I owned my previous primary residence for over 5 years and have been married for 2. If we were not married, I would have qualified for the move-up credit and my wife would have qualified as a first time home buyer. We purchased our new home together, a purchase we thought would qualify us as either a first time or a move-up buyer. This was a major decision for us and one with serious ramifications. The IRS interpretation of the move-up credit truly seems to go against the spirit of the law. The spirit of the law was to provide an incentive to purchase a new home for people that have never owned a home or to others that have lived in their homes for a longer period of time. That was exactly the case for my wife and me as we wanted to “move-up” to a better home together. My girlfriend (and now my wife) helped me find my original home over 5 years ago, even though we waited until we were married for her to move into the house. In the meantime, she finished school and lived at home. It seems immoral and unjust to know that we would be better off in the eyes of our government had we bought and lived in the home together prior to being married or that others should postpone getting married to take advantage of one of the authorized credits. If this is how the government wanted this incentive to be delivered to American people and interpreted by the IRS than they should be ashamed. If the interpretation by the IRS was a mistake then the relevant parties should be working hard to correct it. Married folks deserve just and equitable standing from our government and we should get it through their legislative actions and from proper interpretation from the people we employ to manage tax collection. My wife and I, and all the other newlyweds in a similar position, deserve better from CONGRESS and the IRS.
We too are victims of the marriage penalty, which as many have pointed out, is absurd.
An interesting point, though: on the IRS website, they give lots of illustrative examples on when spouses qualify for this credit or that. They focus on whether a spouse has an “ownership interest” in the property.
If you look at it that way, any spouse, whether living in the other spouse’s home while owning his own, or living in his spouse’s home but not being named on the deed, has an ownership interest in his spouse’s property. Ask anyone who’s been in divorce court – I’d like to see a judge who would rule that the spouse who has treated the home as his own for 5+ years but was never on the deed has no ownership interest in the home!
Please tell me what I can do to lobby for a specific amendment changing the law. I’d like the $6500 to fix my new home!
Hi @Jennifer, thanks for the post. You raise a couple of issues. With regard to “ownership interest,” we have pointed out before that in situations where one spouse is on the title, and the other is not, the couple might still qualify as long-time homeowners if they have both lived in the home for at least five consecutive years out of the last eight. We’re hoping to get clarification on that issue from the IRS. Second, you point out that you’d like for your husband to buy part of the home that you own, something that would not be allowed under the basic eligibility guidelines that you cannot get a credit if you buy from a spouse; as you rightly point out, nothing prevents a buyer from claiming the credit for buying a part of a home from a boyfriend or girlfriend. So you’re correct on that as well.
I should have included with my post – we are a military couple who are buying at our new post. I qualify for the long-term home owner credit, since I purchased our first home, two months before we married, because my husband was in school while serving in the reserves. Now, he is buying our home, and he would otherwise qualify for the first time homebuyer credit. Basically, because we’re married, we lose out. If we had never married, if we were divorced, we’d both be eligible to collect.
I just found out that my wife and I can’t qualify for the tax credit on the home we are about to purchase next week. She qualifies as a new home buyer and I for the long term credit, but together, nada. Not getting the credit is not going to stop us from buying the house, but it is going to stop us from doing some of the projects we planned and ACTUALLY STIMULATING THE ECONOMY! Just another poor execution of a reasonably good idea by our government. Won’t they ever learn. Hope something can be done to make it right. I guess all you can do is complain to your congressman.
My wife posted on your blog a few weeks back on how we are also being affected by the ‘Marriage Penalty’ because we have been married for about 2 years and she is a first-time homebuyer and I am a long-time homebuyer. I am curious to hear if you have gotten any updates from the Congressmen you have been in contact with? Also, my wife and I are due to close on our new home in late April which brings a couple more questions I am hoping you can answer for me. One, what is your feeling on whether or not this bill will be ammended to remove the ‘Marriage Penalty’? In other words, based on the feedback you are getting would you consider this a real possibility or a long shot? Secondly, if by chance the bill is ammended would it have to be done before our closing date in late April in order for my wife and I to get the credit?
Hi @Terrence, there has actually been a bill drafted by a member of the House Ways and Means Committee, which is currently in consideration for submission to the committee. That said, I would put the chances at less than 20%, simply because I think that the mood in Congress is not to extend or amend the tax credit any further. But if it is amended, my guess is that the removal of the marriage penalty would be retroactive to November. I think a lot of people assume they are getting it, without understanding the marriage penalty, so that might put pressure as people start getting their tax refunds back and realizing they don’t get the credit.
This has to be affecting millions. Virtually everyone that was married in the last 5 years at least. Because my wife lived in the same home only 4 1/2 years while I lived there over 8 years we won’t qualify for the credit. Not even half of it. Unmarried couples and those living together prior to marriage appear to qualify just fine. Was the penalty only recently recognized or intentional? Why the congressional deaf ear to an obvious problem.
Eric
Hi @Eric, thanks for posting. Well, we’ve gotten some Congressional attention from Congressman Eliot Engel, so let’s see what happens…..
I am so sad! I just found out tonight that my husband and I won’t qualify for either tax credit. He has owned the house we just sold for 6 years, but since we got married 2 years ago, I do not qualify for the 2nd time home buyers tax credit. Although I am purchasing our new home under my name only, I won’t qualify for the first time home buyers credit. How annoying and unfair!!! We were really looking forward to getting something!
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Hi @MJ, that’s a terrible story. I honestly feel like the reason Congress has not been more active in fixing this, and the media has not made this more of an issue, is that they don’t realize how many people this is going to impact. And I think a lot of married buyers in your position are only going to find out that they don’t get the credit when they get their return reviewed by the IRS.
I am extremely upset about this rule as well. In order for me to be a repeat buyer in the first place I am having to rent out my current condo that me and my husband both live in. It’s too small. This is a financial burden and the thought of getting that tax credit was comforting in the face of being a reluctant landlord. I simply do not think it’s fair that married couples who would otherwise qualify are being penalized while unmarried couples with the EXACT same mixed combo are going to qualify. It really doesn’t make much sense. In fact, married couples are more likely to buy a house together then unmarried couples so why does a home buying incentive law exclude the married couples who are more likely to take advantage of it? It’s kind of sending the wrong message if you asked me. If you are unmarried and buy a house you are rewarded but not if you are? Ever since I got married I have OWED on my taxes so I don’t even think it’s fair to say that married couples are better off tax wise and so do not need the benefit. If this was an unintended consequence of the wording of the law they should simply fix it. Period.
Hi @CC, thanks for posting and sharing your story. We agree 100%.
Looks like a sloppy legislative effort to me! Don’t these Congressmen really pay attention when they write new laws?
As I do a little more searching on this subject, things are looking gloomy. My wife lived in the same home for the past 20 years here in Georgia. I married her and moved to Ga in 2007. We just bought a new house in Dec 2009, but I didn’t live with her for 5 years. I would qualify as first time buyer, she would qualify as long time resident, but collectively we don’t qualify. I guess if we had lived umarried and teaching our kids that is okay, we could qualify. This is a crock!
Bill…