It used to be assumed that getting married would help to alleviate debt concerns because doing so would have a positive effect on a person’s tax bill, among other things. However, that may not actually be the case, especially if both spouses have high annual incomes. Beyond that, getting married can potentially reduce a person’s mortgage deductions when filing taxes.
Annual Income and Tax Obligations
Under some circumstances, of course, marriage will do wonders for a person’s yearly tax requirements. For instance, when one spouse earns significantly more money than the other spouse, the couple’s joint tax bill will likely go down after marriage.
In many cases, though, getting married could end up bumping the couple into a higher tax bracket because the spouses’ combined reportable income will be substantially higher. The end result will be greater tax obligations and potentially greater debts.
A Shift in the Law: Mortgage and Home Interest Deductions for Married Couples
Another negative financial implication of getting married is that married couples are limited in the amount of mortgage and home interest that they are allowed to deduct on their tax returns.
This didn’t used to be the case, but the Internal Revenue Service (IRS) recently made a big change in the law. The change came in response to a 2015 court ruling in which an unmarried couple, Bruce Voss and Charles Sophy, were granted maximum mortgage debt and loan interest deductions on two houses they owned together in California.
Prior to this court decision, it was the position of the IRS that no two parties should be allowed to claim the maximum deduction on the same property in a given year. However, in light of the decision handed down by US Court of Appeals for the Ninth Circuit, the IRS has changed its tune: when filing taxes, unmarried individuals can now legally deduct the interest on as much as $1 million in mortgage debt and up to $100,000 in home equity financing.
However, the change in the tax code also means that it may not be in a person’s best financial interests to get married – since married couples cannot claim two deductions.
If you are struggling with debt issues, you should talk to a qualified debt management attorney. Joel R. Spivack, Esq., is an experienced bankruptcy lawyer who can help you explore all of your legal options. Contact Mr. Spivack anytime to schedule a free consultation.