LGBT Real Estate Tax Topics for Filing Season

Not only did LGBT Americans lose an hour of sleep by setting clocks forward in March, but many of them are still losing sleep as they worry about looming state and federal tax filing deadlines. To take full advantage of any tax breaks and benefits that are available to LGBT real estate buyers, sellers, or property owners in 2011 there are some important issues worth considering.

One major rule that applies to some IRS tax filings this year has to do with homeowners who negotiated loan modifications or short sales or were foreclosed upon in 2010. Normally the IRS looks at any outstanding loan balances that were waived by the bank or mortgage company as ordinary income. If part of a loan was dismissed, for example, the borrower is usually still required to pay income taxes on that cancelled and forgiven amount. The unexpected notification can come as quite a terrible shock. Taxpayers may be struggling to keep their homes or have already lost them, and then they get a huge tax bill just when they were hoping to make ends meet and get back on their feet again.

Needless to say, this policy has been greeted with ferocious controversy. Many believe that it is quite unfair to force people to pay taxes on money they did not actually receive in cash that was connected to an overpriced loan in a declining housing market. The majority of members of Congress agree, and for that reason lawmakers in Washington created a unique emergency exemption covering distressed home mortgages.

-      Under this provision the debt the mortgage lender canceled must have been used to “buy, build, or substantially improve” the borrower’s principal residence, so the tax break will not apply to everyone.

-      But to see if they do qualify, LGBT homeowners who had debt canceled as part of a loan modification or foreclosure should go to the IRS website (IRS.gov) and download Form 982 along with IRS Publication 4681 that spells out the details. Or call (800) TAX-FORM to request these items.

-      Lenders normally provide borrowers with IRS form 1099-C, which is the official cancellation of debt statement. If it was not received then eligible taxpayers should request it from lenders right away so that it can be shared with tax preparation professionals and forwarded to the IRS. 

More good news for LGBT taxpayers this time around is that they do not actually have to file their returns until April 18^th, which gives everyone another long weekend to get ready. That’s thanks to the fact that Friday, April 15^th falls on Emancipation Day, a holiday observed in the District of Columbia. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Similarly, those taxpayers who request the available extension will have until Oct. 17 to file their 2010 tax returns.

Unfortunately the rights of LGBT citizens have not had their own full emancipation day – and that can unfairly impact the real estate ownership and taxpayer experience of the LGBT community. Depriving LGBT couples of marriage rights means denying them some really valuable real estate tax breaks meant to provide incentives to invest in the American Dream.

Perhaps the most significant of these relates to estate taxes which can be prohibitively expensive for LGBT couples. Meanwhile “straight” couples recognized as legally married under federal law enjoy exemptions that let them escape these taxes. There are also miscellaneous tax breaks like those sometimes offered to first time buyers that tend to favor married homeowners. So in many cases the IRS real estate tax code facilitates economic discrimination against members of the LGBT community while unfairly favoring heterosexual married couples. 

But the momentum is definitely headed in the right direction. The Justice Department, for example, was recently ordered by President Obama to stop defending the constitutionality of the Defense of Marriage Act. That’s a huge step, because it is rare for the government’s own legal division to take a stand which may be in direct opposition to existing federal laws. In practical terms it means that court cases arguing against gay marriage will not get as much support as they have enjoyed in the past, while legal challenges to the constitutionality of bans against LGBT marriage grow stronger. 

Gay marriages are already legal in a handful of states, and other states are expected to pass their own laws within the next year or two to legalize LGBT unions or at least outlaw discrimination based on sexual orientation and gender identity. But these laws don’t have enough clout without federal backing and are often overturned. Everywhere in Canada, by contrast, it is legal for gays to marry. The time has come for the United States to follow the lead of its northern neighbor and ensure LGBT equal rights.

Connect with real estate professionals devoted to serving the LGBT community by visiting www.GayRealEstate.com, the world’s largest online network of LGBT Realtors. Or just call toll free 1-888-420-MOVE (6683).