President Obama made a splash this week when he threw his support behind gay marriage, leading professional blowhard Rush Limbaugh to pronounce that the President had “declared war on traditional marriage,” a war Limbaugh — he of three previous divorces — should know plenty about.
But whatever your thoughts on Ace and Gary being able to make it formal, this much is certain: in the tax Code, sometimes it’s to your benefit to NOT be married to a loved one. Peter Reilly — tax blogger at Forbes and friend of Double Taxation — has the details:
I thought that it might be timely, though, to once again review some of the tax advantages of not being married.
The deferred salary – If Robin owns a C corporation (call it Robco), Robco can employ Terry. Robco should pay Terry once a year. If Robco is an accrual basis corporation it can accrue the salary due to Terry and pay it to Terry, a cash basis taxpayer in the subsequent year.
The free basis step-up – If Robin owns a rental property, Terry can buy it by giving Robin a long-term installment note. Robin will recognize no income until the principal is paid. Terry will have a stepped up basis for purposes of depreciation or even sale. (Thus it would even be worth doing with a vacation property, if it is likely to be sold.)
The basis swap – If Robin owns a high basis property and Terry owns a low basis property and they wish to sell the latter, they can do a like-kind exchange prior to the sale, thereby reducing the gain.
The wash sale – If Robin wants to maintain a securities position but harvest capital losses, Terry can purchase the identical security on the same day that Robin sells.