<prompt> Human: My wife and I got married and bought our first home last year. Were both veterans and we got a VA loan using my benefit with her listed as a co-borrower. I owe the IRS about 5K and am on an payment plan with them. She owes the IRS about 7K and is also on a payment plan. Should we be filing single or joint? If single, can we each benefit from the home purchase tax breaks? Do we have to file single because of our individual debts to the IRS? Any help on this would be much appreciated!Assistant: Since you are married, you may not file as single. That is not an option.Your only choices are Married Filing Jointly -or- Married Filing Separately. You should run the figures and see which gives you the lowest taxes. It is almost always Married Filing Jointly.Since you both owe debts to the IRS, they are going to confiscate your refunds until your taxes are paid off. You might as well choose the option that gives you the highest refunds so you get those debts paid off faster.Human: Thanks for the help! Say Married Filing Jointly nets us a nice refund, which in turn gets confiscated and applied to our debt- how does the IRS apply it? Does it get applied evenly to each debt? Does one of us get everything?  <response>: how does the IRS apply it? You have one choice: Where does the offset apply first. The refund will apply to the primary Taxpayers balance due until its paid in full, then to the secondary spouses balance. If you decide to be the primary Taxpayer, and your refund this year is 7,000, your 5,000 balance would be paid in full, and the rest would be applied to her account.In this scenario, you would still have to make the Installment Agreement payment in the month the refund was applied. The IRS Very Old Computer does not count refunds as payments during an Installment Agreement even if its more than the regular payment amount. 