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Same-sex marriage in Iowa: the tax stakes
April 03, 2009
Most same-sex couples will not see a difference in their Iowa taxes as a result of today's Supreme Court ruling allowing them to wed in Iowa. The Iowa tax system allows married couples to file "separately on a combined return," giving them each a run up the brackets. Most married couples file this way; only couples with a single earner and very little joint investment property normally file an Iowa return with "joint" status.
In certain situations, though, it can make a big difference.
Capital losses. A spouse with capital losses they can save money by offsetting the other spouse's capital gains.
Passive losses. If one spouse has "passive" losses, they can normally offset the other spouse's "passive" income. Also, one spouse's participation counts in determining whether the other spouse is "passive" with respect to an investment.
Iowa Capital Gains Deduction. The "ten and ten" rule allows a capital gain tax exemption for property from a business with 10 years of continuous ownership and of material participation. Like with the passive loss rules, spousal participation counts.
Pension exclusion. Qualifying married taxpayers can exclude up to $12,000 in pension income, even if it's earned by only one spouse. The exclusion is $6,000 for single taxpayers.
Inheritance Tax. property passing to spouses is exempt from Iowa's inheritance tax.
In general, marriage is a tax advantage when one spouse has tax breaks that the other spouse can use that would otherwise be deferred or lost. Other examples could include excess tax credits and net operating losses.
Federal tax filings are unaffected for now by the decision, as the Defense of Marriage Act prohibits joint filings by single-sex couples. As filing status is determined at the end of the tax year, the Department of Revenue will need to come up with rules dealing with the differences between federal and Iowa rules this year sometime.
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