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Author: adumbsnail Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: need quick tax/house advice Date: 4/15/2008 6:53 PM
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*** Cross-posted to the Buying or Selling a Home board. ***

Hello everyone,

I need some advice for a married friend. He and his wife currently live together in a house, but they are looking to temporarily (whatever that means) separate. To that end, they are looking to sell their house, and each get a new place of their own (apartment or house).

Their concerns are as follows:

If they sell the house and both move into apartments, they will end up owing money to the IRS next year because they won't have the mortgage interest deduction. Is there a way around that? Would filing "married separately" address that issue?

If they sell the house and both move into houses, what happens if/when they sell their individual houses in the future in order to move in together again? Will one of the houses be considered a "non-primary" residence because they're still legally married? If that's the case, who determines which residence is the primary one? And, will any profit on the sale of the secondary residence be subject to capital gains taxes?

It's amazing how complicated life can get. Any other related advice is also welcome.

As always, thanks for all of your help,
~snail
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100404 of 121585
Subject: Re: need quick tax/house advice Date: 4/15/2008 7:04 PM
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I need some advice for a married friend. He and his wife currently live together in a house, but they are looking to temporarily (whatever that means) separate. To that end, they are looking to sell their house, and each get a new place of their own (apartment or house).

Their concerns are as follows:

If they sell the house and both move into apartments, they will end up owing money to the IRS next year because they won't have the mortgage interest deduction. Is there a way around that?


An easy one. Adjust their withholding upward by reducing the withholding allowances they claim on their W-4's.

Would filing "married separately" address that issue?

It would likely make it worse. MFS is a worse filing status than Single (which is not available to them while they "find themselves").

If they sell the house and both move into houses, what happens if/when they sell their individual houses in the future in order to move in together again?

It depends. IRS Publication 523 is the reference.

Will one of the houses be considered a "non-primary" residence because they're still legally married?

No. This is a facts and circumstances issue.

If that's the case, who determines which residence is the primary one? And, will any profit on the sale of the secondary residence be subject to capital gains taxes?

Moot

It's amazing how complicated life can get. Any other related advice is also welcome.

Your full-service tax advisor is glad to step up.

Even if it means parking a tractor on your tongue, stay as far out of this affair as you can. You are clearly closer to the husband than the wife, so I assume the majority, if not all, of the conversations will be with him. Practice the sympathetic, but neutral, look in your eyes. Think bassett hounds. Your response to his statements is "Hmmm," pronounced with the ends of the mouth turned down and the eyes slightly closed for negative remarks; the mouth is turned slightly up at the ends and the eyes widen with the same remark in response to positive remarks.

In no case, no matter how much he whines about her, jump on the bandwagon. That just about guarantees that they'll get back together and he will dismiss you with, "You never did like her!"

Good luck. Have you considered adjourning to a desert isle for the duration?

Phil

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Author: adumbsnail Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100430 of 121585
Subject: Re: need quick tax/house advice Date: 4/16/2008 12:35 PM
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An easy one. Adjust their withholding upward by reducing the withholding allowances they claim on their W-4's.
OK. I think they're already set to single with additional taken out each paycheck. So they would just increase that amount then?


It depends. IRS Publication 523 is the reference.
Thanks - I'll let them know.


Even if it means parking a tractor on your tongue, stay as far out of this affair as you can.
I agree. I'm only helping as asked, and dealing only in facts.


Good luck. Have you considered adjourning to a desert isle for the duration?
Heh, that's not a bad idea!

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100433 of 121585
Subject: Re: need quick tax/house advice Date: 4/16/2008 1:40 PM
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I think they're already set to single with additional taken out each paycheck. So they would just increase that amount then?

The always right all purpose answer to tax questions applies. It depends. With the scenario you describe how are they coming out on a joint return reflecting home ownership?

If they're concerned, they should amend their W-4's to status "Married, but withhold at single rate" with zero allowances. An extra cushion would come from additional withholding. Whether it's needed depends on the answer to my question above.

Phil

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Author: adumbsnail Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100435 of 121585
Subject: Re: need quick tax/house advice Date: 4/16/2008 2:01 PM
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With the scenario you describe how are they coming out on a joint return reflecting home ownership?

I know they received a refund between $1000 and $2000 for 2007.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 100437 of 121585
Subject: Re: need quick tax/house advice Date: 4/16/2008 2:06 PM
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I know they received a refund between $1000 and $2000 for 2007.

They'd probably be fine leaving it as is, with the marital status change.

Phil

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