When lesbian, gay, bisexual, transgender and queer couples set out to buy or rent a home, they may confront several forms of discrimination that married heterosexual couples do not face. LGBTQ couples can face discrimination in access to housing, and there is no federal law against it. Same-sex couples often must pay more in taxes when they buy or sell a home, or transfer ownership interest, than married heterosexual couples do. In the event of a breakup or death, one partner may find himself or herself out of a home – unless the couple had the proper legal documents drawn up.
On January 24, 2011, the Department of Housing and Urban Development (HUD) published a proposed rule that would require grantees and participants of HUD programs to comply with local and state non-discrimination laws that include sexual orientation and gender identity. This proposed rule would also prohibit inquiries
regarding the sexual orientation or gender identity of a prospective tenant or applicant for assisted housing. The public comment period on this rule has concluded and a final rule implementing these changes is expected.
Read below for more information about about property ownership. The Statewide Housing Laws & Policies Map is the most current source for statewide housing laws and policies.
Taxes and Owning Property
The good news about taxes is that homeowners enjoy greater tax advantages than people who rent. The bad news is that same-sex and other unmarried couples do not enjoy the same tax advantages that married couples do. Yet the bottom line is that same-sex couples who own homes still enjoy more tax advantages than couples who rent, and there are a few things you can do to maximize those advantages.
Deciding Who Should Take the Mortgage Tax Deduction
Homeowners can deduct the amount of interest they paid in their mortgage payments from their federal income tax. But if you’re an unmarried same-sex couple, required to file separately, which one of you should take that deduction?
Basically, you have two choices:
- Both of you can divide the deduction, or
- One of you can take the whole thing.
At first glance, dividing the deduction may seem like the best option. But in reality, this depends on whether you have similar or widely divergent income levels. If they are similar, chances are that dividing the deduction will serve you fine.
Tip: If you both want to take the deduction, you should make mortgage payments by separate checks so you will have proof of your respective contributions.
If one of you earns significantly more than the other, allowing that person to take the whole deduction may make result in a greater tax savings for both of you.
Tip: If you plan to take the deduction on only one return, that taxpayer's name should appear first on the mortgage.
Before making a decision, it is very important to consult a financial planner who specializes in working with same-sex or unmarried heterosexual couples, since each family’s situation varies.
Watch Out for Those Transfer Taxes When Adding One of You to a Title
In many states, an owner who wishes to give at least 50 percent of his or her property to another must pay a transfer tax on the property. Transfers between married couples usually are exempt from this tax. But when a member of a same-sex couple puts his or her partner on the deed, it results in the transfer of 50 percent of the interest in the property to that partner and requires payment of a transfer tax.
Some states have taken steps to remedy this inequality. Consult a financial planner specializing in LGBTQ or unmarried couples to find out about the laws where you live.
Tips for Minimizing Estate Taxes
It’s not a popular topic but when one partner in a couple dies, there are potentially serious tax implications worth thinking about now because estate tax law discriminates against same-sex and other unmarried couples.
What the implications are depend on the type of title you hold, and a number of other factors. For example, suppose you are a married heterosexual couple and have secured ownership with a title that says you are joint tenants with right of survivorship. In the event of your death, your married spouse might have zero estate tax liability (or, in some cases, limited liability). A same-sex partner, in contrast, would be treated as a stranger in most states.
The tax advantage for same-sex couples in holding property as a tenancy in common is that when one partner dies, only that partner's portion of the property goes into the deceased partner's estate and becomes subject to the estate tax. For more information, contact a financial planner who specializes in LGBTQ or unmarried couples.
Joint Tenancy with Right of Survivorship
This is the most popular option same-sex and other unmarried couples choose and the one many advisers recommend. Including this phrase in your title establishes that:
- You and your partner share ownership and use of the property, and
- If one of you dies, the other will automatically assume sole ownership
Tip: Remember that when you make a plan that includes leaving your home to anyone else, there are tax implications that you and your financial planner should take into account.
Tenants in Common
This option offers certain tax advantages and allows owners of a home to leave inheritance of their respective shares to whomever they choose, providing a will clearly specifies their wishes.
For example, some couples who have children from a prior relationship choose to title their property this way so it can automatically pass to their children upon their death. Others who place their home in a living trust may choose this option as well.
Some couples choose to have the title held in one person's name only, which means that only one person actually owns the home. One reason some couples are tempted to do this is for the promise of a tax advantage if the couple has widely varying incomes.But establishing a title this way may present the unnamed party with very serious risks in the event of a breakup or death. For example, if your partner's name is the only one listed on the title and he or she dies without a will, you will have no right to claim ownership of the home # unless, perhaps, you engage in a lengthy and expensive court battle.
Similarly, if you and your partner unexpectedly break up and, in a time of disappointment or anger, your partner decides to sell the home, he or she can pocket the assets and you can find yourself without a home or any of the money or work you may have invested in it.
Other Estate Planning Documents
There are many other legal documents, in addition to a good title,that LGBTQ couples should secure to protect their relationships, home and other assets. For more information, see Estate Planning.
Discrimination in Housing
Housing discrimination against lesbian, gay, bisexual, transgender and queer people takes a variety of forms. For example, couples have been discriminated against when shopping for a home. Others have been told they cannot put both partners' names on a homeowner's insurance policy, which is important to do if both partners share ownership of the home. And still other couples have been discriminated against when filing a claim as some insurance companies have attempted to refuse claims or cancel policies on the grounds that the owners are "unrelated."
The best way to avoid discrimination: Know your rights at the federal, state and local level.
Federal law lends no protection. The Fair Housing Act (Title VIII of the Civil Rights Act of 1968) prohibits discrimination in the sale, rental, financing of or other housing-related transactions based on race, color, national origin, religion, sex, family status or disability. But it does not protect people against discrimination based on sexual orientation or gender identity.
Seventeen states and the District of Columbia prohibit housing discrimination based on sexual orientation and gender identity.
- California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maine, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and Washington.
In addition to the states listed above, another four states prohibit housing discrimination based on sexual orientation only.
- Maryland, New Hampshire, New York and Wisconsin.
Courts and administrative agencies in several additional states have interpreted either their sex or disability discrimination statutes to prohibit certain forms of discrimination against transgender people.
Municipalities that Prohibit Discrimination
There are more than 240 local jurisdictions that prohibit discrimination based on sexual orientation in employment and, in most cases, housing and public accommodations. About 60 of these also prohibit discrimination based on gender identity or expression. Check with your local government for more information.
Other Estate Planning Documents
There are many other legal documents, in addition to a good title,that LGBTQ couples should secure to protect their relationships, home and other assets. For more information, see HRC's Planned Giving site.
Please keep in mind that the materials provided on the HRC website are for informational purposes only and may or may not be valid in your particular state or situation. We strongly recommend that you consult a competent financial planner who is familiar with these issues. It is also important that you understand that the information provided here in no way constitutes, and should not be relied upon, as professional advice.