If my husband and I file separately, how do we handle the rental property that we own? Should we both claim the property? How do we divide expenses and income?

[greenberg-rita]

If we file separately, do we both claim the rental property as income? If so, do we both list expenses and rental income?

[DianeW]

If the rental property is in both names and you file separately you can split the rental income and all expenses in half if a joint account is used to receive rents and pay expenses. You could also decide to choose who will claim the rental property on their return.

If an account owned by only one of you is used for the rental activity and/or the rental is only in one of your names, that person should claim the rental activity.

If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. 

• Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI

https://ttlc.intuit.com/replies/3301943

[Sunroom25]

Re: Sch E losses

By filing MFS, Can you claim losses on each return even if you lived together?Confused with Pub 927 that you have lived apart separately at all times during the year.  Then who should claim the losses if they want to file separately? 

[JamesG1]

If you use the married filing separately filing status, you may not be eligible for the $25,000 exception for rental real estate with active participation.  See IRS publication 527, page 13.

Many rental real estate tax returns claim a loss and this exception allows many taxpayers to claim the real estate loss against ordinary income.

This feature may not currently be available to you depending upon your modified adjusted gross income (see page 14).

Losses could eventually be realized upon the sale of the rental property.

[DiLarik]

If the family moved out to another location and decided to rent this property, can only one spouse report the income/loss items on Sch E if the rental property is jointly owned? the filing status MFS.

[Carl]

Basically, you split *EVERYTHING* right down the middle when filing MFS, assuming both parties own the rental property.

Be aware that when a married couple files separate returns, they both "automatically" lose a fair number of credits and deductions they would otherwise qualify for if they filed joint. So you'll both lose things like the EIC credit, the $25K rental loss against other ordinary income, any and all education credits and deductions, and quite a bit more will be lost or extremely limited.

Also, if one of you takes the standard deduction then both of you "must" take the standard deduction - even if itemized deductions would be higher for one of you.

If one of you itemizes deductions, then both of you "must" itemize deductions - even if the itemized deductions of one of you is ZERO.

Bottom line is, when you both file separate returns, your joint tax liability is going to be higher than it would be if you filed joint.

[DiLarik]

i understand that we can split "everything", but we prefer to report rental income/expenses on Sch. E by only one spouse. is it allowable for the rental property owned jointly?

[Carl]

You most certainly can do that. But if you live in a community property state, then the other party will end up reporting and paying tax on half of the income on their own tax return anyway.

[DiLarik]

if it is not a community property state, then another spouse can report NO rental income/expense (no Sch E), would it be correct?

[toofan1]

I live in a community property state.  we are going to file MFS. We have two rental properties in this community state that owned jointly and expenses paid from a  joint account. Can I deduct 50% of the income/loss on these two properties on my return? We are separated and living apart for 2 years but have not filed for a legal separation yet. Will I lose that $25,000 passive loss deduction against the active income? What other tax consideration should I consider? There are some properties in another community property state purchased by my spouse , but the tile is under  his name and and a LLC. Will  I get half of the income/loss of those properties too? My husband was applying section 467(C)(7)(A) and reporting them as an active income/loss last year that we filed joint return. Now that he gets 50% of the loss of these two properties in my community property state, will the other 50%  Income/loss of these two properties will be added to his portfolio and get the section 467)C) (7) (A) treatment for this year too? On  my schedule E's in my separate return,  do I enter 50% of the activities in every line of this schedule? How about depreciation? Should I enter half of the purchase price of these properties to get  my share  of depreciation using Turbotax? What happens to the estimated taxes that my spouse paid, would that be split in half two? Too many questions but your input is really appreciated.

[Carl]

I live in a community property state. we are going to file MFS.

Then everything gets split 50/50.

Be aware that when a married couple files MFS, you both automatically lose out on a number of credits and deductions you would otherwise get if filing joint.

Additionally, if one of you takes the standard deduction, then you both must take the standard deduction, even if the itemized deductions of one is higher.

Likewise, if one of you itemizes deductions, then you both have to itemize deductions even if the itemized deductions of one would be ZERO.

[mpiotti]

We are splitting all income and expenses from our rentals. But how about the depreciation for last year? Turbotax calculates that automatically, and I don't find the way to split it. Or we just leave it as it is?

Thanks

[Carl]

If you filed MFJ last year with the online version, and wish to file MFS this year for 2021 with the online version, then you will both need to create new online accounts and enter everything from scratch. That is the only way possible to split things like prior depreciation and PAL carryovers between you. The potential for user error in doing this is extremely high too.

[Taxladybeach52]

My husband and I file MFJ each year.  However, this year we'd like to file MFS to take advantage of my medical expenses for surgeries in the year.  Also, we started a rental property this year.  The house is under both of our names but the bank account used for transactions is only under my name, therefore the 1099K only has my name listed.   If we do MFS, do we split the rental activity 50/50 for 2021 or keep it all under my return?  For 2022 when we switch back to MFJ, do we just combine the passive activity loss carryforward onto the joint return?  We plan to file MFJ in the future, just trying see if its worth it since I had a lot of medical expenses. 

Thanks for your help!

[Carl]

this year we'd like to file MFS to take advantage of my medical expenses for surgeries in the year.

You'll split the rental 50/50 on everything right down the middle. If using TurboTax, this *will* create an issue for both of you on your 2021 tax return, as well as 2022 when you go back to filing a joint return. These issues are way beyond the program's ability to deal with too.

- Be aware that when a married couple files jointly, you both automatically lose a number of deductions and credits you would otherwise qualify for if you filed joint.

- Your allowed SALT deductions are automatically cut in half for each of you.

- If one of you itemizes, then both of you must itemize even if the itemized deductions would be zero for one of you and the standard deduction would be higher. Likewise, if one of you takes the standard deduction, then you must both take the standard deduction even if the itemized expenses would be higher for one of you.

While not impossible, it is not common for it to be more beneficial for a married couple to file separate.