Home purchase raises key tax issues for recently wed gay couple

A recent change in the federal tax law is confusing some gay homeowners, their accountants and even state tax agencies themselves.

Q. We live in a state where gay marriage is legal, so my longtime partner and I finally tied the knot last year and then bought a house together. Does this change the way we have to file our upcoming federal tax return to take our deductions for mortgage-interest charges, property-tax payments and the like? Or do we keep filing the way we always have?

A. Gay marriages are now legal in 17 states, and experts say that number likely will grow in the years ahead. The way you and your new spouse will have to file your 2013 federal return in a couple of months has indeed changed, but those modifications affect some gay spouses more profoundly than others.

With Valentine's Day here, I'm devoting this entire column to addressing the ever-changing issues that entwine love with real estate.

This year, for the first time, gay couples who were married in a state where such unions are legal must file their federal returns as either "married filing jointly" or "married filing separately" - the same choices that straight couples have. Most married people save money by filing jointly, especially if one spouse earns much more than the other, but it may be better to file separately if both earn about the same.

Here's an important catch: Many gay couples wed in a state where such marriages are legal but permanently reside in a state where such matrimonies are not. Though all of them must now select either joint or separate when completing their federal return, they may each be required to file as a "single" when completing their home state's tax return. That can create a real mess that can be difficult, though not impossible, to clean up.

Laws regarding gay marriages and their effect on taxes and property ownership are constantly evolving, so it's important you and your spouse consult an accountant before completing both your federal and state returns.

Real estate trivia: There are 10 cities or towns named Valentine in the U.S., from Arizona to New Jersey and South Dakota to Texas.

Q. I have an excellent credit rating, but my fiance's score is pretty lousy. I am told that when we marry, my current score will drop and that I will automatically "inherit" half of all of her previous debt on the day of our July wedding. Is this true?

A. No, it's not true. Your personal credit score won't promptly fall on your wedding day, and you won't be responsible for any of her premarital debt, unless you had agreed to cosign for her previous loans or credit cards.

Still, this doesn't necessarily mean you won't run into problems if the two of you later decide to buy a home. When you apply for a mortgage or other joint debt, the lender will consider both of your credit histories when making its decision whether to approve or reject the application. That means her spotty credit history could require the two of you to pay a higher interest rate or larger fees, assuming you can get a loan at all.

You might be able to avoid those higher charges if you earn enough money by yourself and can leverage your sterling individual credit history into getting a mortgage in your name only. You could then add your new wife's name to the title to the property after the deal closes. The drawback: You would be the only one who's legally responsible for paying the money back, even though your spouse would own half of the home.

Q. If my girlfriend starts living with me in my longtime apartment, will I have to notify my landlord in advance?

A. The only way to get a definite answer is to read your current lease or rental agreement. Nearly all such contracts clearly state how many people can occupy the unit, and demand that the landlord have the right to approve any new tenant in advance.

Even if the agreement doesn't address such issues, it would be wise to talk with the landlord about you and your sweetheart's plans anyway. You don't want to instead quietly move her in behind his or her back: The property owner or manager will certainly find out about it sooner or later, which could erode any good will that the two of you have established when you first moved in yourself. That, in turn, could have major repercussions - especially if you are renting on a month-to-month basis, or live in an area where landlords can evict for virtually any reason.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2014, Cowles Syndicate Inc.