State Taxes - North Carolina

[jah4589]

I know a married couple that files jointly for federal tax purposes can file separately for NC tax purposes (i.e. one spouse is a non-resident for NC tax while the other spouse is a resident).  

The question I have relates to Investment income allocation (1099 - dividend income and capital gains).  If the joint investment accounts  are linked to SSN of the spouse who is a NC non-resident, does the spouse who is a NC resident have to claim a 50/50 allocation of the investment income, or can they claim less.  I know NC is not a community property state, but I am struggling to find guidance on whether the NC resident spouse would have to claim a 50 percent allocation of investment income on the NC return when filing married filing separately.

Any help would be greatly appreciated.

[NCperson]

who is the owner of the underlying assets?  do the two spouses jointly own all the assets that are generating the income? 

[NCperson]

on page 19 of the NC individuals tax instructions, it states:

Lines 1 through 15. In Column A, Lines 1 through 15, enter the
income you received from all sources during tax year 2018. (If you
filed a 2018 federal income tax return, enter the amounts reported
on your federal return.) If married filing a joint return, you must
include the total income from all sources of both spouses, even
if only one spouse is a resident. In Column B, enter the amount
of Column A received from North Carolina sources or income
received while a resident of North Carolina.

If the underlying assets that generated the dividends, interest or capital gains are jointly owned, then NC would expect 50% of the unearned income to be reported to NC. 

Ownership of the assets is based on the legal ownership, not whose SS# was used to report the income.

Further, be forewarned, that NC receives a file of your income from the IRS (because AGI is the starting point for the NC tax return).  So it could come up in  an audit that there was unearned income on the federal return but nothing reported on a NC return for a resident spouse filing separately if you think that filing all the income against the non-resident spouse's tax return would past muster!