IRS rule change may give gay couples in three states a tax break

Many same-sex couples in California are getting a tax break this year from the IRS, according to new requirements to report their combined income on federal tax returns.

Under so-called "income splitting," the IRS is requiring all same-sex married couples or registered domestic partners in California to divide their combined income equally and report it on their separate tax returns.

For some couples, it will mean more money in their 2010 refund; for others, they'll pay more in taxes.

Either way, the change is significant, both monetarily and emotionally, officials of Lambda Legal, the national gay and lesbian legal rights group, said Tuesday in a conference call with reporters.

Peter Renn, a Los Angeles-based Lambda attorney, hailed the new IRS requirement as a money-saver for many same-sex couples, as well as another step to "move the ball forward" in recognizing their rights.

Those who will save the most are same-sex couples with the biggest disparities in income. For instance, a couple where one earns $100,000 and the other is a stay-at-home spouse with little or no income, will split their combined community earnings on their individual tax returns, with each reporting $50,000 in income. The result: an overall lower tax bill for both.

In an example cited by Lambda officials, a hypothetical couple where "David" is an attorney earning $225,000 and "Richard" a librarian with $20,000 in income, will see a combined savings of $6,824 in taxes.

The IRS ruling applies in only three states – California, Nevada and Washington – that have community property laws and that recognize married same-sex couples and registered domestic partners.

In California, same-sex couples who are registered domestic partners or were legally married after June 16, 2008, and before Nov. 5, 2008, are considered to share community property and can file their state taxes as "married," filing either jointly or separately with the state Franchise Tax Board. The same is true of registered partners who are heterosexual couples.

The IRS change brings the federal tax return a step closer to those filed by same-sex couples in community-property states.

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