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Marriage penalties and deduction issues for federal taxes

Georgia residents may be familiar with the idea of a marriage penalty on federal tax returns. The concept relates to tax scenarios that provide greater advantages to unmarried partners than to those who tie the knot. While many ignore these issues as they wed, some may allow these financial matters to influence their consideration of getting married.

A case involving domestic partners living in California involved an Internal Revenue Service audit after the two men each claimed the full amount of mortgage interest on each of their two jointly-owned properties. The IRS noted that the men could not both claim the full amount, which led to them filing suit in tax court. Although the court agreed with the IRS, anappellate court later overturned the decision, allowing each partner to claim the full deduction. The court carefully evaluated federal tax law in making its decision.

The case opens an interesting door for other unmarried partners as they file tax returns involving joint properties. Whereas a married couple can only claim a deduction for mortgage interest once for their household, unmarried individuals both benefit financially from these deductions. This can be particularly advantageous to those who own property in upscale communities with high housing prices. Although the case in question applied specifically to individuals involved in a domestic partnership, the principle can also be applied in other situations involving joint purchases. Family or friends might work together with more than one party having the right to claim the full amount of interest on a federal return.

Because IRS rules and regulations can be confusing, those with complex financial situations might benefit from working with tax lawyers. In addition to providing insight, a lawyer could help an individual who is being audited.

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