Changes that took effect Jan. 1 may have a big impact on GLBT tax returns next year. For the first time, GLBT couples who are registered domestic partners will have the option of filing joint state income taxes.

Although most people won’t begin to think about their 2007 tax returns until sometime in 2008, The Center recently hosted a seminar for GLBT couples explaining how they may be affected by changes in the law.

California Senate Bill 1827, the State Income Tax Equity Act, which was passed last year, modified the existing domestic partnership law to grant registered GLBT couples the same tax rights as married couples. However, it’s not as straightforward as it sounds, and, as attorneys Larry Conway and Gregg St. Cyr told the crowd gathered at The Center on Jan. 25, it complicates some aspects while simplifying others.

In some ways, the state of California is blazing new territory. Although GLBT couples in other states may be able to file joint income taxes, California is the first “community property” state to do so. In a community property state, when a couple is legally married or partnered, most assets acquired during the marriage are automatically considered to belong equally to both individuals.

Conway illustrated how this could affect GLBT couples by using an imaginary scenario between himself and Arnold, his partner of 20 years.

“Suppose that today my partner, Arnold, and I were to go out and form a registered domestic partnership, and suppose that at the time that we registered we didn’t have any property of any kind, and then we went out and bought a house, exercise equipment, jewelry and other property,” he said. “If Arnold and I were to dissolve our relationship, or if one of us passed away, automatically the property would be treated as though that property was acquired by half of us, regardless of which one of us paid for it. Even if I was a deadbeat good-for-nothing during the entire relationship, and Arnold bought everything, I would still have a half share under community property rules.”

Although GLBT couples can file jointly on their California tax returns, the federal Defense of Marriage Act prohibits them from doing so on their federal income taxes. There is some uncertainty as to how the disconnect between federal and state laws will be worked out. The Internal Revenue Service has typically relied on individual states to define what is considered community property. Based on pronouncements issued in the past, it is possible that the IRS could decide to treat all community property gains as taxable income.

Using his earlier example again, Conway illustrated what effect this would have on couples. “Maybe the IRS is going to take the position that if Arnold really was the one who bought all these things, then by virtue of the fact that they end up community property – half his/half mine – then Arnold has made some type of taxable transfer to me,” Conway said.

This highlights one of the ways that California GLBT couples will have to continue to think differently than married heterosexual couples. A husband and a wife can transfer money or gifts between each other because there is an unlimited marital deduction, but, at least on the federal level, GLBT couples don’t have that same luxury.

The speakers also covered general tax issues to consider such as the difference between probate and estate taxes, transfer on death accounts, joint tenancy, the ins and outs of gift taxes and other tax topics for couples to consider.

Because of these new rules and the complicated ways in which the changes in the law could affect GLBT couples, Conway and St. Cyr recommended registered domestic partners consult a tax attorney if filing jointly for the first time.