Update: One Bank Gets It - Wells Fargo

After running into roadblock after roadblock on trying refinance our home in the post 2010 IRS tax publication 555 ruling, my mortgage broker finally came back with good news. It turns out Wells Fargo is much more progressive than other banks, and one alternative we have to refinance our house. It's sad because I've already spent close to $1,000 on refinance costs with another bank that I won't recoup if we have to switch banks to complete our refinance.

But here's the good news, in a letter Wells Fargo sent out to their loan agents:

The IRS mandated effective with 2010 1040 returns that registered domestic partners must each report half the combined community income earned by the partners.

If you have a W2 wage earner borrower and the his/her domestic partner is not on the subject loan in order to use all of the W2 wages the borrower earned then the following documentation is required.

· Borrower’s 2010 1040 that supports 50% of W2 wages claimed and notation on the 1040 domestic partner claimed other 50% wages (If borrower has filed 2011, which I would be surprised as of this date, should include those along with the 2010).

· Operations will need to obtain the W2 from the IRS using the 4506-t in order to validate matches the W2 statement provided by the borrower.

· Operations still obtains the tax transcript and that should always match the 1040 (no difference in process with this step).

At least one bank gets it.

The Effect of Publication 555 from the IRS

The right wing often claims that gays get equal rights with laws around domestic partnership and civil unions, and they don't need marriage for equality. I've been battling a side effect of domestic partnership and civil unions laws which are supposed to take the place of being able to get married, and provide me with equal protection. But unfortunately of course they don't.

In particular the problem I'm facing is a side effect of Publication 555 from the IRS which I've written about before. I'm trying to refinance our primary home this month to take advantage of the low interest rates. But I'm running into an issue because of the way our 2010 tax returns look due to Publication 555 from the IRS. While its intent was good, in trying to make taxes look similar to what married couples have to do, it had the by-product of also making my income "look" smaller, essentially disqualifying me for a refinance. Married couples don't have this issue because they get to file their taxes using the category "married filing separately", a category that domestic partners aren't allowed to use.

It's an additional problem for us because we have our home titled in a trust. We do it this way because it's the only way to reduce the tax consequence of passing on a home if one of us should pass away. But due to marriage laws, only one of us is allowed to be named on the trust, unlike married couples where both parties can be on a living trust. So for us, I'm on the trust, and my domestic partner is the beneficiary. This way if I die first, my partner gets the property and the tax savings, and if he passes away first, then nothing changes and beneficiary of the trust becomes our daughter. But using a trust means the mortgage and property are only titled in my name rather than both of us. So doing a refinance in both our names to alleviate the 2010 reduced income tax return issue isn't really an option either.

Basically you're screwed financially if you can't get married, at least in trying to reduce your interest rate in a refi, and trying to get lower taxes on inheritance through a trust. Gay people can't have it both ways, while married people can.