There is no denying that getting married is a joyous event that the population has fought for and won the right to, but the IRS thinks that there is a dark side to this contract.
The dark side deals with the possibility of a couple receiving a bigger tax bill once they are married. This does not apply to everyone because couples where only one partner is making the money will likely get a bigger refund. So marriage would be encouraged for couples in that particular situation.
This changes when the soon-to-be married couple are well-to-do professionals. This happens because the IRS combines both incomes, which can force a newly-married couple into a higher tax bracket.
August 2016 proved to be a pretty important month for unmarried couple’s due to a change just implemented by the IRS. Unmarried couples will now be eligible for a double deduction when they buy property together. Both partners can claim a home mortgage interest deduction. This is a perk that married couples will give up when they want to be married in the eyes of the state.
One might wonder how this change came about, and it actually started with a couple in California in 2015 when they effectively beat the IRS. The couple that took on the IRS was Bruce Voss and Charles Sophy. Both individuals held property in various areas of California. It is no surprised that the two owed about $2.7 million, in addition to a yearly interest that summed up to $180,000.
Voss and Sophy were savvy enough to find out that tax law allowed a taxpayer to deduct up to $1 million of mortgage debt, not to mention the $100,000 in home equity. The couple tried to use this law to relieve some of the amount they owed, and the IRS audited them.
The IRS said that the deductions available to taxpayers is applied to the entire household, which meant that the couple owed them $198,415 over 2 years. This was something that Voss and Sophy were not going to take quietly, which is what prompted them to sue the IRS. They lost in small courts, but then they appealed to the US Court of Appeals where the previous rulings were overruled. The men were able to get their rightful $1.1 million deduction.
Of course, a few months after that ruling, the IRS adopted the rule and gave this right to every taxpayer in America. So, the IRS is telling couples that if they are a well-to-do couple, consider saying “no” to that marriage proposal.
For tax help call Creative Tax (562) 251-1300