Marriage Penalty for newly marrieds in the home buyer tax credit

It has come to light that, based on the wording and interpretation of the IRS regarding the First Time Home Buyer Tax Credit, there may in fact be a new “marriage penalty” for some taxpayers. The tax credit continues to be a very successful program, providing up to $8,000 for first-time homebuyers and $6,500 for longtime homeowners. The program, which ends April 30, has been a much needed shot in the arm, and a stabilizing force, in the housing market, but it will have less of an impact because of the adverse and probably unintentional way the eligibility requirements treat married couples.

From an op-ed piece by Joseph Rand: “If the government wants to promote marriage as a stabilizing force in society, why does it keep penalizing married couples in the federal tax code? Critics have complained for years about a “marriage penalty” that punished couples who paid more in income taxes than they would if they were unmarried, resulting in legislation in 2001 that eliminated the penalty in most tax brackets. The government is at it again, with an even more pernicious “marriage penalty” in the new homebuyer tax credit.“

Essentially, the IRS requires that married couples share a matching ownership history. Either both spouses must be first-time homebuyers, or they must be longtime homeowners in the same home. This penalizes recently married couples, since long-married couples probably share an ownership history. But recently married spouses probably have not shared a history of living together in a home they have owned for more than five years, so their only likely chance at eligibility is if you they both qualify as first-time homebuyers.

He makes his case as follows: “When two unmarried people buy together, they are tested separately to see whether they are eligible. If one is eligible and the other is not, the eligible partner can get a full tax credit. But the IRS interprets the law very differently for married couples. For married couples to claim the credit, both spouses must be eligible. If one is eligible, and the other is not, the ineligible spouse renders the couple wholly ineligible. Even if both spouses are eligible, they have to be eligible for the same type of credit. If one spouse is eligible as a first-time homebuyer, and the other spouse is eligible as a longtime homeowner, they still do not qualify for either. Even if they both qualify as longtime homeowners, they have to qualify for owning and living in the same house. If one spouse has owned and lived in a home for 10 years, and the other has lived in and owned a different home for 10 years, they cannot sell their two houses and buy a new one together with hopes to claim a credit.”

Rands solution? “This “marriage penalty” is almost certainly an unintentional result of the way the legislation is worded, because it seems unlikely that Congress would so severely undercut the applicability of the tax credit to married couples after so aggressively fixing the general marriage penalty 10 years ago. If that’s the case, Congress still has time to fix the “marriage penalty” in the homebuyer tax credit. How? If two married people would each qualify independently for different tax credits, allow the couple to take the lesser of the credits. If only one of them is eligible, allow the married couple to qualify for the eligible spouse’s portion of the tax credit.”

We’d like to see congress put married couples on par with unmarried couples to take advantage of this tremendous incentive program. What do you think?

Note: With gratitude to Joseph Rand

Deborah Bremner
REALTOR, 00588885,
Certified Short Sale Professional
Certified Home Retention Specialist
(O) 310-571-1364 DIRECT
(D) (310) 800-2954

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