Another Good Reason Not to Get Married, Courtesy of the IRS

There are plenty of reasons to get married. Your taxes may not be one of them.

Some couples—generally those with one person who earns far more than the other—will see their tax bills fall after marriage. But for two well-paid professionals, tax bills can soar post-marriage, as their combined incomes put them in the highest tax brackets.

And well-off couples just got another financial incentive to cancel the wedding. Unmarried couples can now deduct effectively twice as much of their mortgage and home interest on their tax returns, thanks to a change this month by the Internal Revenue Service.

The IRS had little choice: A year ago, it lost a California couple’s lawsuit challenging its mortgage-deduction rules. Bruce Voss and Charles Sophy were registered as domestic partners and owned two properties together in California, in Beverly Hills and in Rancho Mirage near Palm Springs. In 2006 and 2007, they had about $2.7 million in debt on their houses, and they were paying a combined interest of about $180,000 a year.

The law says taxpayers can deduct the interest on up to $1 million in mortgage debt and $100,000 in home equity financing. Voss and Sophy each tried to deduct this full amount, but the IRS audited their returns and said the $1.1 million limit had to be applied on a per-residence basis—meaning they had to share the deduction limit and lost the right to $198,415 in deductions over two years. The men sued, but a tax court sided with the IRS. They appealed to the U.S. Court of Appeals for the Ninth Circuit, which last August overturned the ruling and found, based on a close reading of the tax code, that the men should each get their own $1.1 million deduction limit.

This month, the IRS “acquiesced” in that ruling—applying it not just to Voss and Sophy and other taxpayers under Ninth Circuit jurisdiction but to all taxpayers nationwide in similar circumstances.

Read more about it here:


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