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Same-sex couples in Maryland, D.C. face homeownership issues

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Real Estate,Dean Bartoli Smith

There are property laws and tax implications when same-sex couples in Maryland and the District purchase a home together or transfer ownership rights of an existing property, legal experts said.

Maryland has joined the District of Columbia in recognizing marriage between same-sex couples at the state level, but the federal government does not, and benefits available to opposite-sex couples, such as tax-free transfers of ownership, do not apply.

"A lot of people are at risk of being burned and they have no idea," said Micah Salb, an attorney at Lippman, Semsker & Salb who specializes in estate planning and probate law.

"I've told all of my same-sex couple clients to talk to a title attorney now that Maryland has recognized same-sex marriages," said Lise Howe, a Realtor with Keller Williams Realty in the District. "They will want to maximize their ownership rights under Maryland law."

Salb said there are taxable gift implications with property ownership transfers, as well as with down payments and monthly mortgage payments.

"If Joe buys a house that's worth $1 million and wants to [co-own it with] Mark, Joe has just made a gift to Mark of $486,000 that is potentially taxable. The first $14,000 of the gifted amount is exempt," Salb said.

If one same-sex spouse covers the down payment or the entire mortgage payment, those amounts potentially are taxable as gifts to the other spouse.

"Transfers between married, opposite-sex couples are completely tax-free," Salb said. "That means if Joe and Mary own property together and Joe wants Mary to have the house, he can give the house to Mary -- completely tax-free."

This is possible because the opposite-sex couple that owns the property is doing so under a "tenants by the entirety" method of holding title, which states that the two owners are treated as one person. It also protects the property from being seized as part of a settlement against the owner. These benefits are not available to same-sex couples.

There are two co-ownership scenarios in addition to "tenants by the entirety," called "tenants in common" and "joint tenancy."

"Tenants in common" divides the property into pieces between owners and, if one owner dies, his or her share goes to the estate.

"It is most commonly used by investors to split profits," he said. "Each tenant owns a piece of the property."

Under a "joint tenancy" arrangement, the owners, who are called "joint tenants," share equal ownership of the property and have the equal right to keep or dispose of the property.

"It's 100 percent of the property owned by two people, like two pieces of paper overlapping," Salb said. "If one person dies, there is no change of deed. The other person continues to own 100 percent."

Under both "tenants in common" and "joint tenancy" scenarios, creditors still can come after the house and other assets should a judgment arise.

Same-sex couples can own by "tenants by the entirety," but their situation is still not the same as that of an opposite-sex couple. In states that recognize same-sex marriage, a same-sex couple would have protections at the state level but not at the federal level, said John Nalls, an attorney at Counselors Title in Washington.

"If I've married my partner and switched from 'joint tenancy' to 'tenants by the entirety,' I am protected at the state level but the federal government may have recourse to go after the property," Nalls said.

Nalls doubts the Internal Revenue Service will recognize same-sex couples as spouses.

"A ruling by the Supreme Court will decide it," he said. "It will work its way up."

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