IRS Recognizes All Legal Same-Sex Couples

The Internal Revenue Services has ruled today that same-sex couples, legally married in a state that recognizes such marriages, will be treated as married for federal tax purposes. See Revenue Ruling 2013-17.

This ruling applies regardless of whether the couple lives in a state that recognizes same-sex marriages. The ruling does not apply to domestic partnerships or civil unions recognized under state law.

This follows the June 26th Supreme Court decision invalidating a key provision of the Defense of Marriage Act.

The IRS has clarified that legally married same-sex couples can file an amended tax return to take advantage of favorable tax laws in prior years only available to opposite sex couples. To amend your return, file IRS Form 1040X Amended U.S. Individual Income Tax Return.

Impact on Family Child Care Providers

This announcement can have a profound impact of family child care providers who are now legally married or plan to.

Business Deductions

Under current law, if a provider is unmarried and living with someone (of either sex) she would not be able to claim any business deductions for items not paid by her. This includes furniture, appliances, equipment, supplies, property tax, mortage interest, utilities, house insurance, house repairs, house depreciation and so on.

However, if the provider is married she can claim the business portion of all of these expenses, regardless of whether or not her spouse paid for it. Now, legally married same-sex couples can claim these business deductions.

In addition, a provider who does not own a car, may now claim car expenses for a car owned by her legally married same-sex spouse.

In all cases, the provider should seriously consider amending her tax return for the past three years to claim these deductions and get tax refunds if they were legally married in those years.

Recapture House Depreciation

Let's say a provider has lived with a same sex partner for the last ten years while she has been doing child care. The house is in the partner's name. As we have said, once the provider and partner become legally married the provider can start claiming house depreciation on their 2013 tax return and can amend their 2012, 2011 and 2010 tax return to claim this previously unclaimed depreciation (if they were legally married in these earlier years).

What about house depreciation earlier than 2010? The IRS ruling does not address the issue of using IRS Form 3115 to recapture previously unclaimed depreciation. This form allows providers (and other taxpayers) to go back and claim all previously unclaimed depreciation from earlier years. There is no limit as to how far back this depreciation my be recaptured. If allowed, then the provider in our example would be able to claim house depreciation from 2003-2013 on their 2013 tax return (without having to amend previous tax years). This could represent a substantial tax benefit for 2013. Providers could only use Form 3115 if they were legally married in the years they are recapturing depreciation.

Note: If allowed, IRS Form 3115 could also be used to claim previously unclaimed depreciation for all items owned by the partner in earlier years and used by the family child care provider while doing child care.

The IRS ruling also applies to other general tax provisions: claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRS, and claiming the earned income tax credit or child tax credit.

With this ruling providers can go to a state that recognizes same-sex marriages (Minnesota, Iowa, Maine, Vermont, New Hampshire, Massachusetts, Connecticut, Rhode Island, New York, Maryland, Delaware, California, Washington and the District of Columbia), get married, then return home to their state that doesn't recognize such marriages and get all the benefits of married couples under federal tax laws.

Good news for equal protection under the law.

Tom Copeland - www.tomcopelandblog.comImage credit: https://commons.wikimedia.org/wiki/File:Demonstration_in_favour_of_same_sex_marriage_about_Obergefell_v._Hodges_in_front_of_SCOTUS_06.jpg