Are There IRS Penalties for Married Filing Separately?

If you've tied the knot but still prefer to keep your money separate from your partner, you may decide to file separately instead of jointly on your taxes. Before you decide to check the "married filing separately" box on your tax form, however, consider the possible penalties you may have to pay, especially if you own your home. These penalties could decrease your income tax or refund. So, before proceeding, it's a good idea to read all tax publications that apply to your situation and consider consulting a professional tax adviser.

Reduced First-Time Home Buyer Credits

In some tax years, the government encourages people to buy houses by extending credits to first-time home buyers. If the credit program is available and you're eligible, the amount you can deduct is limited. For instance, for the 2009 tax year, the first-time home buyer credit was up to $8,000, but if you filed as "married filing separately," the credit was shaved in half to up to $4,000. So if you've just purchased a new home in a tax year where you're allowed to take a first-time home buyer credit, keep this information in mind before you choose to file separately.

No Education Tax Credits

When you choose to file separately from your spouse, you cannot deduct a number of credits. One very significant and common credit that you relinquish is an education credit. That includes both the Hope and Lifetime Learning credit, which covers tuition and education-related expenses for going to an accredited institution. You also can't take the student loan interest deduction. So if you or your spouse go to school and pay tuition or student loans, you may want to consider filing jointly instead so that you can utilize these tax benefits to reduce your tax debt.

Mortgage Insurance Deductions

If your lender requires you to pay mortgage insurance premiums (also called private mortgage insurance or PMI) as a condition of getting the loan, you're usually allowed to deduct this cost on Form 1040 Schedule A (Itemized Deductions). However, you can't take the deduction if your income exceeds $54,500 (as of 2009) if you decide to file separately from your spouse.

Personal Exemptions

When you file separately, you may not be able to take the entire amount of your usual personal exemption amount ($3,650 as of 2009). If your adjusted gross income (AGI) is over a certain level ($125,100 as of 2009) an "exemption phaseout" applies where you can only take a portion of that exemption amount. When you file jointly, the AGI requirement where this exemption phaseout applies is much higher ($250,200 as of 2009).

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