System error, system will not allow to choose HOH, when Married, meeting HOH guidelines and having common property

[TaxguyWannabe]

I have tried different approaches, but the system fails to allow me to properly choose Head of household when married, living separately, with a dependent, and having common property

[macuser_22]

What does "common property" mean?

Head of Household is for UNMARRIED taxpayers with a related dependent or married and have not lived with their spouse at anytime during the last 6 months of the tax year AND has a child, stepchild or foster child that can be a dependent.
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You may be able to file as head of household if you meet all the following requirements.

1. You are unmarried or “considered unmarried” on the last day of the year.
(You could be considered unmarried if your spouse did not live in your home at any time during the last 6 months of the tax year).
If you were considered married for part of the year and lived in a community property state, special rules may apply in determining your income and expenses. See Publication 555 for more information.

2. You paid more than half the cost of keeping up a home for the year.

3. A “qualifying person” lived with you in the home for more than half the year (except for temporary absences such as school) - a parent does not have to live with you to be a qualifying person.

4. If the qualifying person is your qualifying relative, their gross income must have been less than $4,300 (do not include non taxable Social Security) and you provided more than 1/2 of their support

5. You must be able to claim the dependent for the qualifying person except in the case of divorced or separated parents (that lived apart) and the noncustodial parent is claiming the dependent.

A Qualifying person is either:
A qualifying child or a qualifying closely related relative and meets certain other requirements, however if you are considered unmarried it can only be your child, stepchild, or foster child.

See IRS Publication 501 for more information about who is a qualifying person and a worksheet to determine the cost of keeping up a home.

See IRS Pub 501 for more information
https://www.irs.gov/publications/p501#en_US_2018_publink1000220775

[TaxguyWannabe]

After reading various IRS publications, and discussions with Turbo Tax, I have found an answer to the issue.

The tax law allows for a married individual that meets the Head of Household condition to apply as HOH.  Often these individuals have common property (investment property); however, the Turbo tax software is not equipped to handle this level of complexity.   

Here are a few things to manually do which override the Turbo Tax system defaults and help you in filing your return:

• Allocate the percentage ownership for each of your investment property to 50% (assuming common property, joint ownership) and enter the full income and expenses for each investment property.  Turbo Tax will calculate the income and Expense.  Please follow Publication 555 for specific details, link listed below.
• Alternatively, you may choose to  manually reduce the income and expenses by half (assuming common property, joint ownership) and leave the ownership percentage at 100%.  Meaning you have to do the Math yourself.
• Important --- Turbo Tax WILL NOT give you the option to adjust the other deductions and credits such Depreciation, Mileage, other expenses, which you should also allocate equally (in the situation listed above)

After you have entered the information on your investment property (as noted above), Turbo tax will give you a review check error  where the system does not understand why you are filing HOH, when Married, as the default should be either Married filing Jointly or Married filing Separately.    This error is on the Schedule E Worksheet.  The error will note that you cannot have a "Owned jointly" option ... this option is automatically filled by Turbo Tax.   

.... So what to do about it?   The only option to overide the system is to uncheck the box  and rerun the smart review.  The ownership information is not part of the Schedule E that goes to the IRS, and possibly a system check done by Turbo Tax that should be fixed, as the code has a bug, as noted in this post. 

Please reference Publication 555 for tax guidance and please note that this post is not meant to be tax advice.  

About Publication 555, Community Property | Internal Revenue Service (irs.gov)