Active Participation Question

[Tony Kim]

Hello,

I was hoping some of you experienced tax professionals could help me with a question. When looking at the way we manage our properties, I think we would easy qualify as active participants as we are 100% owners and pretty much take care of everything. The thing that disqualifies us is the AGI limitation rule. However, if my wife and I were to file married but separately, my wife would qualify as she does not work full-time and her AGI was below 75K. 

Would filing separately allow us to utilize some of our accumulated passive losses from this year (at least the portion that will be allocated to my wife's return)? Since we live in community property state, I figure we would split and assign the RE income & expenses 50/50 to each of our returns. My returns would calculate the RE income as passive and carry forward any losses to next year. However, in my wife's return, we could utilize the passive losses by categorizing them as non-passive and deduct that portion against her W-2 and 1099 income.

Can anyone tell me if this is a viable strategy? I'm just worried the IRS might view this as too much of a work-around in order to harvest some of our passive losses this year. SALT limitation imposed beginning this year is really killing us.  Normally I'd be content to carry-forward all passive losses. However, the amount I owe this year is shockingly high and so I just thought I'd look into possible ways to soften the blow.

Thanks!

Tony

@Linda Weygant