2010 hasn’t brought us out of the economic slump, but some things are improving and I’d like to point out some important facts about filing federal income tax returns, about property foreclosures, and about bankruptcy. As usual, they may have special implications for the LGBT community.
A Major Change in IRS Treatment of Income for Registered Domestic Partners
In an important step toward equality, the community property income of registered domestic partners in California will now be treated by the Internal Revenue Service as it has always been treated for heterosexual married couples. Earned income and community property such as real estate acquired during a registered partnership will be treated as property owned equally by each partner.
You will soon be filing your 2010 federal tax returns. If you are registered partners in California, it is possible that your tax burden may be less under the new rules. If one partner has substantially more income than the other, it is likely that dividing the total income into equal shares will drop the higher-income individual into a lower tax bracket. The combined taxes on two equal incomes could well be less than the combined taxes on 2 unequal incomes.
The IRS will also permit you to file amended returns for the past three tax years (back to 2007) if doing so will result in a lower total tax burden and benefit registered partners in any of those periods.
IRS rules still require registered partners and same-sex married couples to file separate returns. Only heterosexual married couples may file joint returns. And, as has always been true for different-sex couples, each person must report any separate income that is received apart from community income and property.
Please consult your CPA or tax accountant for an explanation of the effects of the new rule in your particular situation, and be sure to ask for a review of your past tax returns to see if you will benefit from amending them.
The Ups and Downs of Home Foreclosures
Mortgage default notices and foreclosures in California are down 20% to 25% from the peak period over a year ago. But there were still over 83,000 default notices filed from July through September this year. Hundreds of thousands of homeowners have been affected by depressed house values that have put their mortgages under water.
Renters have been hurt, too. More than one-third of all California residential units in foreclosure are rentals. It is estimated that more than 200,000 tenants have been displaced because of foreclosures in the last 2 years.
It appears that banks and home loan institutions haven’t reorganized their loan modification programs or fully embraced some of the federal plans that have been enacted to try to help drowning homeowners. We still hear of homeowners who have been trying to refinance for a year or 18 months with no final decision from the loan servicer. Or, who are offered trial modification programs and are repeatedly assured they qualify for a refinance, only to be turned down months later as “unqualified”. In the worst cases, homes are being foreclosed and auctioned off even as the bank continues to meet with homeowners and process the paperwork for refinancing.
Since June, however, new regulations require loan servicers to fully review the ability of borrowers to repay modified loans before offering a modification program, and to pre-approve a permanent loan modification if the borrowers make three trial period payments successfully.
If you are having difficulty making your mortgage payments or think you may face foreclosure, here are some websites that may offer help:
Is Bankruptcy a Bad Thing?
Bankruptcies continue to soar in the United States. Over 810,000 bankruptcies were filed in the first six months of 2010, the highest in five years. The depressed housing market and millions of job losses have made it impossible for many people to handle their debts - debts which were easily managed only a few years ago.
Bankruptcy is designed to give people a fresh start in life. It is not shameful, nor does it take away everything you own and leave you destitute. If you have been slammed by falling home values, job loss, or loss of a partner whose income helped pay the bills, it may be time to consider bankruptcy.
Regulations are strict, but each person filing bankruptcy is allowed to keep everything needed for basic living requirements, retirement and pension funds, and whatever is necessary to continue earning an income.
Because bankruptcy is a federal program, the rules don’t permit same-sex registered domestic partners or married couples to file jointly, and often make it more difficult for partners to file because finances have to be sorted out and separated as if each person were single. If you are considering bankruptcy, be sure to review your situation with an experienced bankruptcy attorney who can advise you on the best way for people in the LGBT community to prepare for filing a bankruptcy petition.
BYTAG
This article is part of an ongoing series of articles pertaining to legal issues in the LGBT community. Previous articles can be viewed at www.heritagelegal.com. This information is intended for general information purposes only, and is not intended to provide legal advice. Christopher Heritage is an attorney in Palm Springs, and San Diego, CA, who focuses on LGBT estate planning, domestic partnerships, same-sex marriage, probate, trust administration, and consumer bankruptcy. He welcomes questions and comments, and can be contacted at 760.325.2020, or by email: chris@heritagelegal.com