How do you allocate unearned income from jointly held accounts when married couple are residents of two different states. This is for state tax return purposes.

Forum|Forum|7 years ago
June 1, 2019
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Married and filing jointly for federal income tax. Unearned income is from jointly held accounts. Couple are residents of two different states: Colorado and New York. How is the unearned income allocated for state income tax purposes? Can one person claim all of it? Does it have to be shared?

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For state tax purposes, you can use any reasonable method to allocate unearned income from jointly held accounts.

The most obvious approach is to allocate 50% of the income to each joint owner. As joint owners, each has equal access to account assets so it is reasonable to state that each has an equal claim to those assets and any income from those assets.

Another approach would be to allocate the income according to the source of the assets in the accounts. If one spouse contributed all or most of the assets in a given account, then you could reasonably allocate all or most of the income to that spouse for state tax purposes.

Anonymous

Answer

For state tax purposes, you can use any reasonable method to allocate unearned income from jointly held accounts.

RC2017TaxAuthor

Level 2

Thank you for your response! Ideally we would like to allocate it all to the Colorado spouse. Based on the comment about "allocate the income according to the source of the assets in the accounts" this would be a reasonable method as all assets did technically come from the Colorado income.

If all of the unearned income is allocated to one spouse, is there any reporting requirement for the other (New York) state tax return? In this particular situation, there is no New York tax liability as all pay for the New York resident is military and the New York spouse is considered a non-resident of New York (domiciled in New York but does not maintain a permanent place of abode there, does not live there, and maintains a home in a different state).