An Orlando client asked about the tax implications of adding his domestic partner to the title on his house. He currently has sole ownership of the house, but thinks he might one day want to own the house jointly with his partner.

The IRS treats adding someone else to title on property as giving a gift of half the property’s value to that person, no matter who that person is. However, when the recipient is an opposite-sex spouse, the gift qualifies for the unlimited marital deduction. That means the gift will have no tax consequences.

On the other hand, when the recipient of the gift is a same sex domestic partner, the original owner of the property will be taxed on the gift.

Currently, the IRS allows someone to gift up to $13,000 annually without paying any taxes. Let’s say my friend’s house is worth $200,000. Assuming he has given nothing else to his partner during the year he adds his partner to the title, he will be taxed on an $87,000 gift (the gift of $100,000 minus the $13,000 exclusion).

Florida doesn’t recognize gay marriage. However, even if my client lived in a state where he could legally marry, the IRS would still disallow the unlimited marital deduction. Kelly Erb, a Philadelphia tax attorney who writes a monthly tax column for The Legal Intelligence and edits the popular Taxgirl blog, explains:

The IRS does not follow state law for recognizing same-sex marriages despite the fact that state law determines marital status for federal filing purposes, including the recognition of common law marriages and legal separations. However, DOMA, which defined marriage as “a legal union between one man and one woman as husband and wife” requires that the IRS not recognize same sex marriages.

If my client were married to an opposite-sex spouse, he could add his spouse to the title with zero tax consequences. Instead, without federal recognition of domestic partnerships, he must weigh the benefits of joint ownership with the crushing tax penalty.