MFS Scheme

[Corduroy Frog]

A married couple wants to see if they can save any taxes by filing separate.

Their incomes (all W-2s) are almost equal.  Husband $51,500  Wife $52,000.  Should help quite a bit.

Husband has paid ALL home mortgage interest himself, out of his own checking account.  Wife has paid some taxes and charity, but not enough to meet the standard deduction for MFS.

Sounds good?  Well,,,,maybe.   The husband has paid all the interest himself, but the loan is the responsibility of BOTH parties.

What say ye?

[kathyc2]

If one person itemizes on MFS returns, they both need to even if other spouse is less than standard deduction.

[mcb39]

I had one of these for years, because they both refused to file with each other's accountants.  My client always got the short end of the stick because she owned the home and paid all of the expenses.  He had nothing to deduct.  Dear friend of ours who has passed away.  He could not take the standard deduction because she itemized.

[Lion EA]

Always check MFJ vs MFS. Your software does all the heavy lifting if you entered all income and expenses as J or T or S. Don't forget to consider the cost of 2 returns.

[jklcpa]

For MFS, they either both itemize or they both use the standard deduction.

When you run the MFS calculations, from what you described with the husband paying the mortgage from an account solely in his name, he would get the entire interest deduction, and she would have to itemize even though the standard is higher.

If you are still using Drake, in order for it to properly analyze joint vs separate returns, I believe you must have three separate input screens (and please make sure that the program doesn't show one itemizing and the other using the standard):

• one for the mortgage interest and any other potential deductions paid solely by the husband with "T" indicated at the top
• one for any potential itemized deductions paid solely by the spouse with "S"
• and a third one for any potential itemized deductions paid jointly with "J"

Please watch for the state impact as well when presenting them with which filing status provides the best overall choice.

[Sara EA]

Usually when incomes are roughly the same, MFS costs way more than MFJ because the tax rates are so much higher and deductions/credits limited.  The SALT deduction for MFS, for example, is limited to $5k each.  It can work if medical expenses aren't 7.5% of joint income but exceed that using one income.

A lot of people ask about MFS when they learn they can't itemize.  They think they are losing out on claiming their mortgages, charities, etc.  Actually, if your standard deduction is $27,700 and your itemized deds are $25k, you are winning!

[Corduroy Frog]

From Judy's post:

with the husband paying the mortgage from an account solely in his name, he would get the entire interest deduction, and she would have to itemize even though the standard is higher.

I have been aware that if he itemizes, his wife must itemize even if not having enough to meet the std deduction.  The question centered around his ability to claim all the interest even though the bank has made both of them responsible for the loan.  Reading Judy's post, it appears he can do this, so long as he is paying from an account in his own name.

Thanks to all for responding.

[Lion EA]

To deduct, you have to be legally responsible AND actually pay. H's name is on the loan, and he paid.

If they had paid from a joint account AND agreed, they could divide their payments in any reasonable method. That could give them flexibility if comparing MFS vs MFJ. Same for donations.

I've seen MFS work when the incomes are very different. Either the high income can make use of the joint deductions plus his own to lower his tax liability, or the high income earner is high enough to have phase-outs but the low income earner can use enough of the joint deductions/own deductions to take her tax liability to zero or low. Or, only one has most of the medical deductions. Prior to/after TCJA, a salesman type with lots of Misc 2% deductions. I had a retired couple with a one-off gambling win that saved with MFS. You have to run the numbers. Look for joint deductions that can be divided up differently.

[Lion EA]

Other scenarios where you should explore MFS:

Student loan repayments, if they lower the payment more than the MFS higher tax.

I had a lot during Covid where the lower income spouse taking all the kids could get more credits MFS.

[BrewOne]

I have a colleague who will not file a couple MFJ if the spouse is self-employed and makes estimated payments.  IRS invariably credits the primary account with the payments and in the case of divorce, it can get very messy.  It's happened to me twice, fortunately both times the primary was cooperative in straightening out the payments.

[Lion EA]

There are NON-tax reasons for MFS. A divorce on the horizon is a big one.