UPDATE April 13, 2010: This post references a “Fourth Type” of Marriage Penalty questioning whether a married couple would qualify for the Home Buyer Tax Credit in situations where the couple has lived in a home for the requisite five-consecutive-years-out-of-eight period but only one spouse is on the title to the property. The IRS has now confirmed for us that in those situations, ownership by one spouse would be imputed to the other spouse, so those couples would indeed be eligible for the Home Buyer Tax Credit as long-time homeowners (assuming they otherwise qualify).
For the last few weeks, we’ve been promoting a campaign to fix the “Marriage Penalty” in the Home Buyer Tax Credit, which denies married couples a tax credit in situations where unmarried couples would get a credit in the same situation. To remind you, we’ve discovered four specific marriage penalties in the IRS application of the Home Buyer Tax Credit that would render a married couple ineligible, all of them situations where at least one partner in an unmarried couple would be able to claim the credit:
- Where one spouse qualifies as either a first-time home buyer or a long-time homeowner, but the other spouse does not qualify for either.
- Where one spouse qualifies as a first-time home buyer, but the other spouse qualifies as a long-time homeowner.
- Where both spouses qualify as long-time homeowners, but for different principal residences (i.e., they both lived in a home they owned for five consecutive years out of eight, but for different residences).
- Where a married couple has lived and owned in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home.
In each of these situations, a married couple is apparently ineligible, according to IRS interpretations of the home buyer tax credit legislation. We’ve profiled some of those people, those who have written to us. If you are interested in the issue, or have a story to tell, you should post it to our comments section and join our Facebook Cause group.The reason for the Marriage Penalty, as we’ve discussed before, is that when Congress wrote the legislation creating the ownership history eligibility standards for first time home buyers in 2008, and the standards for long-time homeowners in 2009, Congress both times stated that a person — and his or her spouse — had to meet those standards. But because the ownership history eligibility standards were written at two different times, Congress never specifically provided for situations where one spouse might qualify under one standard and the other spouse qualify under a different standard.
We’ve spent a lot of time reading and re-reading the original legislation and the IRS interpretations of the legislation, and we think there is a potential solution to at least part of the marriage penalty that simply requires the IRS to revise its reading of the legislation. Further, we believe that the marriage penalty will only be eliminated through a reconsideration by the IRS, because we do not expect that Congress would revise the legislation given the current political climate. (Although, as we write this, we’re starting to hear things that give us at least some faint hopes that Congress might be doing something about this).
With regard to the solution, it only really affects the second (and most egregious) application of the marriage penalty — situations where both spouses qualify, but for different types of credits. (Given that the first-time home buyer tax credit has been in effect for almost two years with requirements that both spouses be eligible, it seems unlikely that the IRS would revisit that issue and allow for eligibility where only one spouse qualifies.)
Here’s an alternative interpretation of the legislation, one that challenges the official IRS position at this time:
Here’s the catch: the November 2009 legislation never actually created a “long-time home buyer” tax credit. Rather than write up new legislation creating a specific long-time home buyer tax credit, Congress simply a special “exception” for long-time homeowners. The language is below (you can find the full text in our Legislation section on the blog):
In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individuals principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.
(emphasis added). Essentially, Congress did not create a category for a long-time homeowner, it simply created a definition of first-time homebuyer that included an individual (and that individual’s spouse) who had owned and lived in a principal residence for five consecutive years out of eight.
The IRS has interpreted the above language to create the “marriage penalty,” asserting that the language states that both the the individual and that individual’s spouse have to have lived in the home for the five year period to qualify as long-time homeowners. If only one spouse has lived in the home for the requisite five consecutive years, and the other has not, the couple is ineligible.
But we would argue that the language of the legislation itself subsumes the “long-time homeowner” qualifies within the first-time home buyer qualifications. That is, a long-time homeowner is simply a type of first-time homebuyer: i.e, “such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.” If that’s the case, how can it be that two spouses, both of whom qualify as first-time home buyers (one as an actual first-time home buyer, the other as a “long-time homeowner treated as a first-time home buyer”), cannot be eligible for a home buyer tax credit? The non-owning spouse qualifies as a first-time home buyer, and the owning spouse qualifies as a first-time home buyer through the “exception” allowing his or her long-time ownership to constitute first-time home buyer eligibility.
Moreover, the Congressional intent was clearly not to create situations in which two eligible spouses would combine to create an ineligible couple, simply because they each satisfy the requirements in a different way.
We are preparing a submission to the IRS to ask for a reconsideration of this issue in this light.
Thanks for the update. I have been checking your website daily and your attempts to have the IRS eliminate this “marriage penalty” are greatly appreciated!! Being that I have lived in and owned my home for the last 10 years there is no reason because I was married 3 and a half years ago and my spouse never owned a home that we should not be eligible for this credit. We are set to close on our new home next month and are crossing our fingers for a change! Thanks again for everything you are doing to get this change made!
KEEP ON THIS
Thanks for bringing attention to this seemingly unintended consequence on the part of Congress. I have already written my representative and state senators about this marriage penalty. I qualify for one credit, my wife for the other, but since we are married, we cancel each other out and will not get any credit as the law is currently written. Please post any updates from the IRS or Congress on this issue. Thanks again.
Thanks for the information! My husband and I are in this exact situation (he’s a long-time owner on the title of our house, I’m a first-time buyer). The ‘marriage penalty’ might cost us the house we are trying to close on. Keep us updated on what the IRS says about your interpretation!
Hi @Kendall, thanks for posting. We’ll definitely keep you updated. Make sure you join the Facebook cause!
It’s also worth trolling online for a tax court ruling in favor of a taxpayer who takes this position.
My wife and I have lived in our current house for 7 years, but we only added my wife to the deed 2 1/2 years ago. The rules always put the two words together – “owned and lived in”. If we are not eligible, it possibly means we don’t buy another house at all.
Hi @Dan, thanks for posting. Keep track of the discussion on the blog, because we’re not yet certain whether the marriage penalty applies to a married couple who has lived for at least five consecutive years out of eight in a home owned by only one spouse. We’re trying to get clarification. (I’m assuming that your wife lived in the home for a few years before you put her on the title).
I’m new to Facebook – How do I find you?
You can just go to our “End the Marriage Penalty” Cause here. Our general information fan page is here.
Great work fighting for married folks. I’ve owned my home for 8 years. I got married 2 years ago and my wife, who has never owned a home, moved in. We’re set to close on our first home together next month. Logic would dictate that we’d at least be eligible for the lesser of the two credits for which we’re individually eligible… but I see now that logic doesn’t apply. Two can play at that game, I’m off to research quickie divorce… just kidding. Keep up the good work. I’m going to my local IRS office to inquire further.
Hi @Blake, thanks for posting. Crazy that you can’t get the tax credit. And my advice, although this is a little outside my field, is that flowers would make a nice gift when your wife sees your post…..
I posted my story not too long ago on another section of this blog. I’m wondering though that IF congress modifies the law and my wife and I become eligible, but AFTER we close (which currently is scheduled for 2/26) would the IRS allow us to retroactively receive the tax credit?
Hi @Marvin, thanks for posting. I have no idea how Congress would deal with retroactivity. I imagine that if the law was changed to fix a technical glitch like this, it would indeed apply retroactively, but that’s just a guess.
Just curious, with my wife and I qualifying for a different tax credit each and thus falling under the “marriage penalty”, what happens if for example just one name appears on the title of our new house? That person couldn’t claim whichever tax credit they’d qualify for on their own? Thanks.
My wife and I are in the same boat. We just married last July, I have been in this house for 12 years. What bothers us the most is now knowing if we would have put off the wedding another year we would have had our choice of credits. Just once I wish this country would encourage marriage and not penalize. Not to mention the funds we spend on our current home getting it ready for sale. Our search and hopes just came to an abrupt halt, as without the credit it seems wiser to wait until after April now. So much for our goal of a new house and a small stimulation for the economy!
We sound like so many of your other responders. I qualify for the new homebuyer and my husband for the long time homebuyer. We married 1-1/2 years ago and that is when I moved in. We have brought our frustration to MANY people and am glad to see that you are providing a voice for us with Congress. Thank you so much!
This is a great blog. My husband and I married almost 2 years ago. He has not owned a home in 5 years. I have owned my condo for the last 5 years. We would like to be considered for at least one of the tax credits but we cancel each other out. Hopefully an official modification will be made since we have only 80 days until the deadline. Unless, however, they decide to extend the deadline just for the couples affected by the “marriage penalty”.
I am in the same situation as everyone else. I have owned my condo for 8 years. I recently married last year. My spouse and I decided because of the tax credit, this is a good incentive for us to purchase a home. Our closing is in the end of April. Since my spouse would be a first time homebuyer and I would fall under the long-time homebuyer, I did some research which credit would apply for our taxes. I rudely found out that we would negate each other. Way to promote marriage. You would think someone at the IRS would have some sense and realize the negative effects it would have on thousand of couples buy a new home. Thanks for fighting for us. I have written to my senator and representative.
Hi @Sameer, thanks for posting. I’m sorry that you find yourself in this position. Hopefully, Congress will revisit the law and give you the tax credit that you clearly should be getting.
I’ve owned my home for more than five years and would have qualified for the $6500 credit. My wife has never owned a home and therefore would have qualified for the $8000 credit.
We got married four months ago so, oops, we qualify for neither thanks to the so-called marriage penalty.
Thanks for the wedding gift, Congress.