SAN FRANCISCO–While attorneys here battle over the legal semantics of marriage laws in the midst of the city’s gay marriage spree, same-sex couples who co-own homes should consult a tax expert to find out how getting hitched could affect their property ownership rights.
San Francisco Mayor Gavin Newsom’s landmark decision to issue same-sex marriage licenses will radically alter the application of home ownership and tax laws for gay and lesbian couples. More than 2,000 same-sex couples have said “I do” in San Francisco since last Thursday.
Most of the property-related benefits of marriage involve payment of taxes, according to attorney Marc Weissman, a certified specialist in estate planning, trust and probate law. His firm, Weiss & Weissman, is based in San Francisco and Foster City, Calif.
“A married couple can take title as community property. An unmarried couple cannot,” he said.
Community property has the right of survivorship, which means ownership transfers to the survivor with no questions asked when one spouse dies. Joint tenancy, a form of ownership unmarried couples commonly use, also has the right of survivorship. However, joint tenants get a step-up in tax basis only on the inherited portion of the property. Federal tax law allows a step-up in basis on both halves of community property.
The step-up in basis means inherited assets are valued for income tax purposes as of the date of the spouse’s death. That means the survivor of a married couple typically pays less income tax on a subsequent sale of the property than the survivor of an unmarried couple would have paid on the same sale of the same property, Weissman said.
The San Francisco tax assessor in October 2002 declared same-sex registered domestic partners equivalent to married spouses for property tax purposes. But that rule only applies in this city, not the entire state, Weissman noted.
Married and unmarried couples also are treated differently in the capital gains tax rules for home sales. The federal capital gains tax exemption allows married homeowners to exclude up to $500,000 in tax-free profit if each owner meets the test of having occupied the residence for two of the last five years before the sale. Unmarried co-owners can each exclude $250,000 if each meets the same requirements.
But in the case of a married couple, only one spouse’s name must be on the property’s title to qualify for the full $500,000 exclusion. Both names must be on the title for an unmarried couple to qualify for the same benefit. The surviving partner of an unmarried couple also might owe higher property taxes than the surviving spouse of a married couple.
“I have clients that don’t want to get married, but we joke that they have to get married on their death bed,” Weissman said.
One tax-related disadvantage of marriage is that income taxes are higher for most married couples. Unmarried couples also have more tax avoidance options than married couples do because federal tax laws prohibit certain transactions between spouses.
“All of this leads to a rather interesting question,” Weissman mused. “Do all these gay marriages (in San Francisco) apply?”
That question won’t be answered until the California court system sorts out whether San Francisco’s same-sex marriages are indeed valid according to law. Opponents argue the marriages violate state law, which defines marriage as between a man and woman. But a Superior Court judge yesterday refused to halt the weddings until at least the end of the week.
If the gay marriages hold up in court, some of them one day may end up in divorce. And that will create a whole new set of real estate and tax law issues for same-sex couples.
Legalizing same-sex marriage is just “one piece in the whole spaghetti bowl,” said Jeff Hammerberg, president of HomeLounge.com, an online referral network for gay and lesbian and gay- and lesbian-friendly real estate agents. He pointed out that many mortgage products designed especially for married couples aren’t available to gay and lesbian couples who can’t legally marry.
“It’s a sort of quiet homophobia,” he said.
The state of Virginia last year lifted a ban on home loans to unrelated or unmarried borrowers who apply for such loans through the state’s Housing Development Authority.
Hammerberg created HomeLounge.com seven years ago because he saw a need for gays and lesbians to have a place to connect with gay- and lesbian-friendly real estate agents and mortgage brokers. Gay couples aren’t unusual in cities like San Francisco. But a gay couple walking into a mortgage loan office could create an uncomfortable situation in other places, he said.
“It’s important that gay couples have the same ability and same rights that married couples would have,” Hammerberg said
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