Should I file married filing separately so I can deduct my real estate rental property losses since my income is below 100k? My income is 94k and my wife's is 114k.

[dbeck1313]

Also, is it required to depreciate my real estate rental properties, or can I choose not to do that so I don't have to pay more taxes when I sell the property?

[Anita01]

No, if you file married separate and you two lived together for ANY part of the year, you lose the right to deduct ANY rental real estate loss.

f you do not claim depreciation, then, when you sell, you must reduce your basis by any amount of depreciation you took or COULD HAVE TAKEN, so not taking the expense means you lose a chunk of loss carryover and still have to claim the depreciaton amount when you sell.

[DavidD66]

Anita01 is correct.  According to the IRS Instructions for Form 8582:

Active participation. If you actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities.

The special allowance isn’t available if you were married, are filing a separate return for the year, and lived with your spouse at any time during the year.

[catfoodv]

Yes.  I just realized difference is my client didn't live with spouse.  That was why it was allowed.  Not sure if the same applies to original poster.

[Carl]

When a married couple chooses to file separate tax returns, they both *automatically* lose a large number of tax credits and deductions they would otherwise qualify for if they filed separate. Additionally, the allowed SALT limits for both are cut in half.

Your rental expenses filng MFS will also still not be deductible. See IRS Pub 527 at https://www.irs.gov/pub/irs-prior/p527--2019.pdf  page 13, "Exception for rental real estate with active participation" and pay particular attention to the caution note which reads, "he special allowance isn’t available if you were married, lived with your spouse at any time during the year, and are filing a separate return."

Also, for the rental losses see page 14, first column, about halfway down, "Maximum special allowance"

It's best to actually read the entire section starting on page 13 "Passive Activity Limits" so you get things in the right context.

[bazbsg]

I just learned about this and was quite surprised by it. What's the justification / thinking in take away that deduction simply for filing separately?

[Critter-3]

The option to file separately has many restrictions to keep people from trying to circumnavigate the laws unfairly  ... it effectively closes tax loopholes and levels the playing field. 

[Carl]

What's the justification / thinking in take away that deduction simply for filing separately?

Basically, to keep tax filers from doing "exactly" what you are wanting to do. Many, many years ago that was a loop hole that a married couple could use to their advantage. That loophole was closed.

[bazbsg]

Could you please explain what "exactly" what I am wanting to do is? I didn't say I wanted to do anything, so I still don't understand.

I notice that when filing separately, the standard deduction is cut in half and the amount of the capital gains loss one can deduct is cut in half. That make sense to me.  Each spouse can have their own half of the total. But why is the real estate loss eliminated instead cut in half like the other things?

The original questioner wanted to be able to deduct his real estate losses because his income was below some threshold I presume. But generally, when filing separately, there are lower thresholds than when filing jointly which should be able to cover this situation.

[Critter-3]

I'll put it this way ... the IRS rules strongly encourages married people to file jointly and to push them in that direction there are some rules put in place that makes filing separately less attractive.   

There are many place in the tax laws where certain behaviors have been influenced over the years ... for instance  being able to deduct mortgage interest fueled a housing boom in the 60s and 70s.  Reduced tax rates on long term investment income and retirement accounts like IRAs and 401K have encouraged savings... etc.

Is it better for a married couple to file jointly or separately?

Generally, filing jointly will give you a bigger refund or less taxes due. When you file separately, your tax rate is higher and you won't be able to claim:

• Education benefits
• Earned Income Credit (EIC)
• Child and Dependent Care Credit (usually)
• Adoption Credit (usually)
• The same benefit married filing jointly couples get for personal exemptions, itemized deductions, the Child Tax Credit, and capital losses (all of these deductions are reduced by half)
• The standard deduction if your spouse is claiming itemized deductions
• Plus a variety of other things.

On top of that, if you live in the community property states of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you have to deal with community property allocations and adjustments, which adds extra work and complexity to your tax preparation chores.

Tip: Only taxpayers who were still legally married as of December 31, 2018 are able to file as married, whether jointly or separately.

Filing jointly means you file one tax return. When filing separately, you file two tax returns.

Want to Compare?               

You can compare filing jointly vs. separately with TurboTax's free calculator TaxCaster. It will give you the estimated tax differences when filing either way. It’s up-to-date with the latest tax laws and can estimate your 2019 taxes as well.

Why would I want to file separately?

The main reason you'd want to file separately is to protect yourself from inaccurate tax information reported by your spouse, or in cases where your spouse refuses to file a joint return (or refuses to file, period) and you don't want to get in trouble.

Also, when you file separately, your refund cannot be seized to pay off your spouse's debts. However, filing jointly as an innocent or injured spouse can head off refund seizures as well.

With all that in mind, you can try it both ways to see which filing status works out better for the both of you. If you do this, also consider your state return; in some cases, the taxes saved on the state return more than makes up for the money lost on the federal, or vice-versa.

You can try the different ways with TurboTax's free calculator TaxCaster. It will give you the estimated tax differences when filing either way. It’s up-to-date with the latest tax laws and can estimate your 2019 taxes as well.

Filing Separately? Use TurboTax CD/Download

If you decide to file separately, we suggest you use TurboTax CD/Download for Windows or Mac, as you can file up to 5 returns within the program. If you use TurboTax Online, you'll have a separate fee for each return.

Related Information:

• How can we compare married filing jointly with married filing separately?
• How do I switch from filing jointly to filing separately?
• How do I file Form 8379, Injured Spouse Allocation?
• What is an innocent spouse and how does it differ from an injured spouse?

[Critter-3]

Special Allowance for Rental Real Estate Activities
Active participation. If you actively
participated in a passive rental real
estate activity, you may be able to
deduct up to $25,000 of loss from the
activity from your nonpassive income.
This special allowance is an exception
to the general rule disallowing losses in
excess of income from passive
activities.

The special allowance isn’t available
if you were married, are filing a separate
return for the year, and lived with your
spouse at any time during the year.

See page 3 :  https://www.irs.gov/pub/irs-pdf/i8582.pdf