Oregon Tax Consultants Practice Exam

What is the maximum Rental Activity Loss you can claim if you file MFS and did not live together?

1. $0

2. $12,500

3. $25,000

4. It depends on your total income

The correct answer is: $12,500

When filing as Married Filing Separately (MFS) and not living together, the maximum rental activity loss that can be claimed is significantly limited. In general, individuals who file MFS do not benefit from the same rental real estate loss allowances that apply to those filing jointly. The ability to claim a rental loss on your tax return may depend on several factors, including your income and the amount of participation you have in managing the rental. The $12,500 figure is relevant for those who file jointly and meet income requirements. However, for MFS status with separate households, the limit drops considerably. In fact, when spouses don’t live together and file MFS, the rental activity losses are not allowed above a certain amount and are generally capped at zero unless specific exceptions apply. Thus, the choice indicating a maximum allowance of $12,500 does not accurately reflect the restrictions placed on individuals filing MFS when they do not live in the same household. Given the tax rules, the typical maximum rental loss that can be claimed in this situation is essentially $0, highlighting the disadvantages of the MFS status for claiming rental-related deductions.