Category Archives: Marriage Penalty

Confirmation that the Marriage Penalty in the Home Buyer Tax Credit will not apply to married couples with one spouse on title.

Posted on April 21, 2010 | 13 Comments

Today, we received further confirmation and clarification from the IRS that the Marriage Penalty in the Home Buyer Tax Credit will not prevent a married couple from claiming the credit in cases where one spouse is on title, but the other spouse is not. As you might remember, we were concerned that the IRS would literally read the language of the tax credit legislation to require that both spouses trying to claim the long-time homeowner tax credit had to be actual owners (i.e., on the title) for the couple to be eligible for the credit.  We spoke to an IRS representative last week about that issue, and he stated (as we had hoped) that ownership would be imputed from the titled spouse to the un-titled spouse, and that a married couple who had lived in the home that one of the spouses owned for at least five consecutive years out of the last eight (and otherwise qualified for the tax credit) would be eligible.

I got further confirmation on that issue today from a Ms. Burchette, ID # 0246491 of the IRS hotline, who actually indicated that the IRS has released an internal advisory (probably in response to our raising of this issue last week) stating the following: “A married couple are both considered owners of the home even if only one spouse is a titled owner when both have been residing in it.”  So although that advisory has not been published, the IRS is using it internally, confirming the information we put out last week.

But the reason I was on the phone today with the IRS was that we had a new series of related questions come up that in our Questions section, from multiple readers who were concerned about what happens if the couple has lived in the home for a long time together, and one of them is on the title, but they were only recently married:

  • From Matt: Wife and I moved into our current home 5 1/2 years ago (fall of 04)and has been our only principle residence in that time period. When we bought the house in 04 it was in my name only. We married in January of 2008 and refinanced adding my wife’s name to the title in December 2008. We have a sales contract currently in place and are closing in June. I would like to think we meet all the criteria as we have both lived in this house for five years, but would like your opinion.
  • From Katie: My husband bought a house in 2003 before we were married. I had never purchased a home. I lived there for 5 years, 4 of which we were married before we bought a new house together in mid-Nov 2009. Does your recent clarification, mean that we specifically had to have been married for 5 years as well to qualify?
  • From K: My husband and I have lived in the same home for five years. He is the sole owner of the home. Marraige according to the IRS imputes ownership to me. My question is: does the ownership imputed to me run from the date of purchase or the date of marriage? We lived together in the home for the first year while engaged.

In other words, will the IRS impute ownership to a non-title spouse where the spouse has lived in the home for at least five consecutive years out of the last eight that the other spouse owned, but where the couple was not married during that whole time? You could imagine a situation where the IRS will only “impute” ownership during the time that the couple was married, and bar married couples from claiming the credit where only one spouse was on title, and the couple was not BOTH married AND living in that home for the requisite five year period.

Fortunately, the answer seems to be that such couples will in fact be eligible for the Home Buyer Tax Credit. According to Ms. Burchette, the key fact is that they must have both lived in that home for five consecutive years.  If they did that, and one of them owned the home, the IRS will consider the ownership to be imputed to the non-titled spouse so long as they are CURRENTLY married.  They do NOT need to be married for the entire time of their ownership.

Obviously, this is good news.  It’s become fairly common for couples to live together before they get married, and it’s not difficult to imagine situations where couples get married after one spouse has purchased a home that they both lived in.  So we’re glad that the IRS is taking a common-sense approach to this issue.

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Posted in Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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More Momentum on the Bill to Change the Marriage Penalty in the Home Buyer Tax Credit

Posted on April 21, 2010 | 6 Comments

As part of our general campaign to end the Marriage Penalty in the Home Buyer Tax Credit, we were interviewed last week by a reporter from the National Journal about the issue.  He wrote up an extensive piece about the issue, which unfortunately was unfortunately behind a subscriber wall when it initially came out.  But it’s live now, and you can read it here:

In fact, we’ve seen a bit of a spike in the traffic on the site this week, and a spike in the Questions section from people asking about the Marriage Penalty, so we think that a lot of people are just discovering the problem.

The funny part about it is that the reporter only discovered the issue when he was getting ready to file his taxes, and realized that he was not able to claim the credit because of the marriage penalty.  I guess what we need now is for someone related to an important Senator to discover the same thing….

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Posted in Home Buyer Tax Credit, Marriage Penalty, Married Couples, Media

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For every clarification, more confusion: more on marriage and the Home Buyer Tax Credit

Posted on April 19, 2010 | 7 Comments

Okay, we confirmed last week that the IRS had finally clarified that there is no “Marriage Penalty”   for couples where one spouse is the titled owner of the property but the other spouse has lived in the home for the requisite five consecutive years out of eight.  (If you are already confused, you should check out our coverage of the Marriage Penalty in the Home Buyer Tax Credit here.)

But given the new surge of questions on the Questions section of the blog, we didn’t clear enough up.  The new question of the week is this: if the IRS will “impute” ownership of the main home from the titled spouse to the untitled spouse, to allow both spouses to qualify as “long-time homeowners”, what happens if the couple wasn’t actually married during the entire time that they lived in the home?

That is, let’s say that we have a couple Harry and Wendy.  Wendy bought a home for herself in 2000, met Harry in 2001, Harry moved in with Wendy in 2003, and they’ve lived together in that home since 2003. If they got married that year, the IRS has now confirmed that they would be eligible for the tax credit even though Harry would not be on the title and not technically a “home owner,” because his wife’s ownership would be imputed to him.  Conversely, if they were never got married, they’d be eligible for a Home Buyer Tax Credit (she’d be eligible as a long-time homeowner, he’d be eligible as a first-time home buyer). 

But let’s say that after all those years together, they made it official last year, and got married summer 2009.  Uh oh. Are they still eligible?  Literally speaking, they would not be, because she qualifies for one type of credit and he qualifies for another type of credit, which is the classic Home Buyer Tax Credit Marriage Penalty problem.  But now the question becomes whether that “imputed ownership” issue will allow Harry to qualify as a long-time homeowner because (1) he lived in the house for all those years, and (2) he is now married to the person who owned it all that time.

We don’t know the answer to this question, but we’ll try to find out.  On the one hand, the IRS has interpreted all these Home Buyer Tax Credit requirements very literally.  On the other hand, it does not seem like the IRS cares so much about the length of marriage, but simply about whether you’re married right now or not.  So it’s up in the air.  We’ll try to find out.

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Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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There is no “Fourth Type” of Marriage Penalty: Confirmation from the IRS that an untitled spouse qualifies as an “owner” for the long-time homeowner credit

Posted on April 13, 2010 | 22 Comments

We finally got confirmation from the IRS about the Fourth Type of marriage penalty that we’ve discussed on this blog.  I just had a conversation with a Mr. Schriber from the IRS, ID #0571682, who has confirmed for me the following: if a married couple has lived in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home, the untitled spouse qualifies as an “owner” for purposes of satisfying the ownership history requirements of the long-time homeowner home buyer tax credit.

This is very good news.  We’ve gotten probably a dozen questions on the Questions section of the blog from people who are in this situation, which makes sense given how likely it is that a couple would get married after one spouse already owns a home, and then live in that home for a long period of time.  Although the legislation literally requires both spouses to be owners of the property, the IRS imputes ownership from one spouse to the other, which is something we speculated about when we initially discussed this issue.

We will be updating the various blog posts about this issue, and trying to find all the questions about this issue so we can let people know the good news.  That said, nothing about this changes the other three types of Marriage Penalties, which prevent a married couple from qualifying for the tax credit if one spouse is ineligible, if the spouses are eligible for different types of credits, or where both spouses are long-time homeowners but for different residences.  To change that, we’re going to need Congress to pass the legislation drafted by Congressman Engel.

My thanks to Mr. Schriber for clarifying this issue for us.

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Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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New Video: The Marriage Penalty in the Home Buyer Tax Credit

Posted on March 8, 2010 | 4 Comments

For those of you who can’t get through our 20-page Special Report on the Marriage Penalty in the Home Buyer Tax Credit, or don’t have time to read through all our posts in the matter, we’ve finally put together a video that explains everything you need to know about the marriage penalty.  Please take a look.

UPDATE April 13, 2009: The video 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).

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Posted in First-Time Home Buyers, Home Buyer Tax Credit, Long-Time Homeowners, Marriage Penalty, Married Couples

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Update on the Marriage Penalty: We have a Special Report, and we have a Bill!

Posted on March 4, 2010 | 22 Comments

UPDATE 3.09.10: We  have added the video we made about the Marriage Penalty.

UPDATE 4.13.10: The video 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).

We know that a lot of you have been following our coverage of the “Marriage Penalty” in the Home Buyer Tax Credit, particularly those of you who have been affected.  We wanted to give you an update on two fronts:

First, we have put together a “Special Report” on the Marriage Penalty, which summarizes and reorganizes everything we’ve written about the Marriage Penalty in the Home Buyer Tax Credit.  We thought it would be helpful as a document to send out to people who might be interested in the issue, particularly for your Congressional Representatives so that they understand the issues presented.

Second, and more importantly, we have a bill — H.R. 4701!  Congressman Eliot L. Engle, the Representative for the 17th District of New York (and, in fact, my Conressman) has drafted a bill to fix the Marriage Penalty and is circulating it among his colleages on the House Ways and Means Committee.  We have no idea if this bill has any chance of passage, but we are hopeful that our Congressional leaders will see that the impact of the Home Buyer Tax Credit will be severely undermined by the Marriage Penalty.

If you want to get involved, here’s what you can do:

  • Join our Facebook Cause, which is now up to 250 members.  We’re not exactly “Farmville,” but it’s something….
  • Send a link to HR 4701 and to our Special Report to your Congressional representatives and tell them that you support fixing the Marriage Penalty.
  • And post the bill and our Special Report to your twitter accounts, facebook, anything you do that can get the word out!

This is the first sign we’ve had that this might actually change.  So let’s act on it.

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Posted in Co-Ownership, First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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Dumb decisions in the Creation and Interpretation in the Home Buyer Tax Credit

Posted on February 9, 2010 | 1 Comment

Last week,  we wrote about the smart decisions that Congress made in creating the Home Buyer Tax Credit. Today, we’re reviewing some of the dumb decisions, either in the creating of the credit by Congress or the interpretation of that credit by the IRS.

Dumb Decision #1: Allow people already in contract as of November 6th to claim the credit.

If smart decision #1 was not making the November 2009 home buyer tax credit retroactive for earlier closings, it was similarly dumb to allow the tax credit to retroactively apply to deals that were in contract at the time.  It’s great for people who got into contract prior to November 6th at a time when they did not qualify for a tax credit, who get a windfall, but it didn’t exactly create an incentive. Those people got into contract based on their own judgment that it was a good time to buy, and obviously, if they didn’t qualify at the time, were not depending on a tax credit.  Giving them the windfall is great for them, and maybe good for the economy if it gives them money they’ll spend to buy stuff, but not exactly in line with the purpose of the credit.  Congress knew enough to set a contract deadline of April 30, 2010 for the new credit, so it could easily have made the credit effective only for deals in contract after November 1, 2009 (or any other date).
Continue reading →

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Posted in First-Time Home Buyers, Home Buyer Tax Credit, Long-Time Homeowners, Marriage Penalty, Married Couples, Tax Filing Issues

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A Potential Solution to the “Marriage Penalty” in the Home Buyer Tax Credit

Posted on January 29, 2010 | 21 Comments

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:

  1. 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.
  2. Where one spouse qualifies as a first-time home buyer, but the other spouse qualifies as a long-time homeowner.
  3. 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).
  4. 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. Continue reading →

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Posted in Co-Ownership, First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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So How Did The “Marriage Penalty” End Up in the Home Buyer Tax Credit?

Posted on January 27, 2010 | 4 Comments

So why has the “marriage penalty” become an issue in the last month? After all, the home buyer tax credit goes back to 2008, and the IRS has always required that both spouses be eligible in order for the couple to claim the tax credit.

We started to wonder about that this week, when someone asked why we had not raised it before.  The answer is simple: the most egregious applications of the “marriage penalty” come from the long-time homeowner tax credit, which did not exist until early November.  Here’s why.

When the home buyer tax credit only applied to first-time home buyers, and the IRS required that both spouses qualify as first-time home buyers, it seemed unfair but not inconsistent with general IRS requirements involving spouses.  The IRS tends to treat married couples as a joined entity (which makes sense), so it was not unusual for the tax code to require both spouses to be eligible in order for the couple to claim the tax credit. Now, that might still be unfair, especially since unmarried couples can claim a tax credit even where one partner is ineligible, but it did not raise any real complaint prior to November 2009. Continue reading →

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Posted in First-Time Home Buyers, Home Buyer Tax Credit, IRS, Long-Time Homeowners, Marriage Penalty, Married Couples

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Who is falling victim to the “Marriage Penalty?” in the Home Buyer Tax Credit? These people!

Posted on January 25, 2010 | 24 Comments

Last week, we asked visitors and readers to submit their story if they have fallen victim to the unintentional “Marriage Penalty” in the Home Buyer Tax Credit.  We got a number of comments and emails, which we’ll re-print below, but we hope that anyone who follows this issue and is affected would contact us so we can continue to put a human face on the issue.

First, from Anthony, in the Questions section:

We just put in an offer yesterday and it was accepted. But after reading your article I am slightly concerned about our eligibility for the tax credit.

My wife and I have been married for 10 years. In August 2003 (so 6+ years ago) we purchased a 2 family residence and have been living there ever since – renting out the other side.

When we were looking to buy, we already had one child so my wife was not working. I was the sole income. When we went to apply for the loan, the bank said my credit and salary were good enough to not need my wife on the application. He said it wouldn’t be an issue. So the application went through with just my name, but we had BOTH our names on all the contracts and documents. When we got to the closing everyone started panicing because they said that could not be done – my wife could not be on the contract and documents because the loan was in my name only. They said it wasn’t that big a deal so they just crossed out her name.

So – for the entire time we have been living in this house, it has been in my name. I always assumed she was still co-owner of it, but now I am nervous that when we apply for the 6500 tax credit on the new house, the IRS would consider her a “new” homeowner and me a “long time” homeowner so we lose.

Do you think that will be the case? Or is she automatically an owner because we were married for 4+ years already when we bought it?

Anthony was the first to raise what we’re calling the “fourth” type of marriage penalty: situations where a married couple has lived in a home owned by one of the spouses for at least five consecutive years out of the last eight, but who might not be eligible because both spouses did not have ownership.  We’re still looking into the issue of eligibility, and we’ll provide an update as soon as we know.
Continue reading →

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Posted in Co-Ownership, First-Time Home Buyers, Home Buyer Tax Credit, Long-Time Homeowners, Marriage Penalty, Married Couples

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