Same-sex couples often jump through legal hoops when dealing with their joint finances — and owning real estate is no exception. Now that the Supreme Court has struck down the law that defines marriage as the legal union between a man and a woman, some, but not all, of these obstacles may be removed.
When it comes to owning a house together, gay married couples can expect to see a few changes now that the Supreme Court has ruled that a part of the Defense of Marriage Act, or DOMA, is unconstitutional. Those changes will affect the mortgage interest tax deduction and Veterans Affairs home loans.
The Supreme Court ruling has a harder-to-define effect in the 50 states and District of Columbia. Each jurisdiction has its own laws regarding the treatment of same-sex couples, as well as its own laws governing ownership of real estate.
This article first describes what could happen federally with the mortgage interest tax deduction and VA loans. Click on the ‘State-by-state’ tab above to see a map that summarizes how same-sex homeownership is governed in the states.
Same-sex marriage and the mortgage tax deduction
Married gay couples who have a mortgage together will be able to claim the mortgage tax deduction jointly now that DOMA has been ruled an unconstitutional violation of the equal-protection clause. That’s because without DOMA’s federal definition of marriage, these married couples will be allowed to file federal tax returns jointly.
Same-sex couples married in states that allow gay marriage have had to file their federal income taxes separately because DOMA prevented the federal government from recognizing their marriages.
“If the federal government doesn’t recognize your marriage and you cannot file jointly — even if, for state purposes, you do file jointly — then one person is usually claiming the (mortgage) tax deduction, even though in reality two people are paying for the mortgage,” Gideon Alper, an attorney in Orlando, Fla., said before the ruling. “Right now, I am taking the mortgage interest deduction on my property, and my partner is not, even though we are both contributing to the mortgage payment.”
Two unmarried people who have a joint mortgage can split the mortgage interest tax deduction as co-borrowers. Say they have $5,000 in interest to deduct. Each co-borrower could claim $2,500. But splitting the deduction and filing separately doesn’t always make financial sense to a couple. For example, the deduction might not be higher than the standard deduction when it is split in two.
Currently, a service member or veteran married to a person of the same sex who wants to get a Veterans Affairs loan can’t include his or her partner as a spouse on the loan. According to federal rules, the definition for spouse requires the individual to be a “person of the opposite sex.”
They could get a VA loan with a joint loan, but unless both partners are veterans, the VA would guarantee only the portion of the loan allocable to the veteran. For example, if the two partners apply for a joint VA loan of $200,000, the VA guaranty would apply to $100,000. Eliminating DOMA’s definition of marriage is the first step to allow the same-sex spouse of a veteran to get the same rights as opposite-sex married couples.
The change is not automatic because in addition to DOMA, Title 38 — which governs VA benefits — also restricts the definition of spouse to opposite-sex couples. But now that DOMA has been ruled unconstitutional, Title 38 will likely go the same way, says Caren Short, an attorney at Southern Poverty Law Center. She is co-counsel on a federal case challenging both DOMA and Title 38.
“Challenges to Title 38 exist, and they already are in a position to be decided,” she says. “Courts that have been waiting for (the DOMA) decision will also find Title 38 unconstitutional.”
Many real estate rules, including title laws, are governed by states, so rules for same-sex couples who own property together vary by state.
The DOMA case before the Supreme Court focused on whether the federal government had the right to define marriage as the union between a man and a woman. The court ruled that DOMA was an unconstitutional violation of the equal-protection clause in states that recognize same-sex marriage. With this ruling, existing and future marriages of same-sex couples will be recognized on a federal level.
The case challenged only Section 3 of DOMA. Another part of the law, Section 2, says that states don’t have to recognize marriages of same-sex couples even if they are legally married in another state. That section was not the issue considered by the court. For now, little will change in states that don’t allow gay marriages.