At the root of the case that brought down house DOMA is a case about taxes: When Thea Spyer died in 2009, she left her partner, Edith Windsor, her estate and assets. That tax year, Windsor was held liable for $363,000 in federal estate taxes—a liability that heterosexual married couples are exempt from since provisions in the Internal Revenue Code allow spouses to inherit unlimited amounts of assets from their deceased spouses. The debate sparked issues about what the federal government recognizes as a legitimate marriage.
In a huge win for human rights, equality, and supporters of gay marriage last Wednesday, the 5-4 Supreme Court vote ruled that the Defense of Marriage Act was unconstitutional. Proposition 8 was also overturned and gay marriage became legal in the state of California again. This has a huge impact on the tax benefits that hundreds of newly federally recognized couples--who live in a state where same-sex marriage is legal--will receive.
Benefits for you and your spouse:
- Your estate is now protected: What you leave your partner when you pass away will not be subject to estate tax.
- You may receive a greater charitable contribution deduction: There’s a limit to the amount of money that you can deduct for charitable contributions, based on income. If your spouses’s income is larger, when you file jointly, you can use your spouse’s income to determine the deductible amount.
- You may be able to claim IRA tax benefits: The point at which IRA benefits are phased out based on income is substantially higher for married couples. Take a look at the breakdown:
- Married couples who actively participate in an employer-sponsored retirement, where one or both spouses actively participate, is eligible to claim a tax deduction provided the join AGI is below $115,000. It is subject to phase-out rules starting at $95,000.
- If you do not participate in an employer-sponsored retirement plan, but your spouse does, the AGI caps at $188,000 and phase-out rules begin at $178,000.
There is still some question as to how Wednesday’s ruling will affect same-sex couples that were married in a state where same-sex marriage is legal, but now live in a state where it is not recognized.
There are many more questions as to how the IRS will come to terms with the tax actions that may come of this. The official statement released by the IRS states,
“We are reviewing the important June 26 Supreme Court decision on the Defense of Marriage Act. We will be working with the Department of Treasury and Department of Justice, and we will move swiftly to provide revised guidance in the near future.”
As more details develop, keep an eye on the eSmart Tax blog for the latest information.