Can Divorced Couples Split Rental Properties on Their Taxes?
If you and your spouse own rental properties together, you are allowed to continue renting it out after your divorce if you wish to do so. However, you’ll need to come to a mutual decision about how you’ll divide these rental assets and the tax bills. As far as the IRS is concerned, whether you are married or divorced does not matter if both of your names are attached to a piece of property.
The rules for taxes for rental properties owned by multiple people are simple enough. If you own 50 percent of the house, you are responsible for 50 percent of the expenses and will report 50 percent of the income on your taxes. This applies to any percentage split between owners. Paying more than your share of the expenses in a year does not change anything — it’s essentially considered a loan to the co-owner (in this case, your ex-spouse).
If you are not a real estate professional, you will report your share of the rental income and expenses on Schedule E on your Form 1040. If you manage the properly actively, you can deduct up to $25,000 from your other income. Otherwise, you are not allowed to deduct any losses.
What if it’s a business endeavor?
If you or your spouse is a professional landlord as defined by the IRS, your rental properties are also considered a business. If the two of you are able and willing to work together, you are able to conduct that business together, which will be much easier for tax purposes. Otherwise you’ll need to come to some sort of an arrangement during your divorce process to determine tax liabilities and/or who will take charge of running the business.