Tax Tip: The Sad Head of Household Loophole

Editor's Note: This article is part of our 2013 Tax Tips series. Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.

NEW YORK (MainStreet) — There is a special “loophole” in the Tax Code that allows one spouse in a married couple who file separate returns to file as “Married Filing Separate” and the other spouse to file as “Head of Household.”

To be “considered unmarried” and be able to file a separate return as “Head of Household” — and pay less tax — one of the spouses must have paid more than half the cost of maintaining his or her home that was the principal residence for more than half of the year for a child, stepchild, adopted child or foster child of the couple who is claimed as a dependent by that spouse (unless the noncustodial parent is allowed the dependency deduction via Form 8332). And the couple must have lived apart for at least the last six months of the year.

John and Jane, who have two minor children, decided to split up in 2012. In April Jim moved out of the family home and into his own apartment. The two children remained with Jane in the family home for the rest of the year. After the split John gave Jane a check for his share of expenses most weeks, and Jane paid the mortgage payments on the home and the expenses of the household from her own checking account. They decide to file separately for 2012. John has no choice but to file as Married Filing Separately with no dependents, but Jane can file as Head of Household and claim the two children.

It is very important that the two spouses do not live, or sleep, in the same home at any time during the last six months of the year.

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