different states

[flht95]

My wife and I live a part and in different states (AZ and PA) We are both full time residents in our respective states. She has Social Security she receives as a PA REsident. I have  pension and Social Security I receive as an AZ resident. in 2021 one we had a rental property that we sold so we have joint rental income and rental sale that I guess gets split across both state. We want to file married filing jointly as it is much more costly to file separately. how do I CORRECTLY file in this situation? Neither of us are part year residents in either state. 

[SundayInSalem]

Arizona and Pennsylvania both allow a married couple to file together even if they live in different states.

Married filing jointly means your total income as a couple will be included – and taxed – by both states.

You can claim a credit for tax paid to the other state on each return because you are residents of different states. 

[flht95]

Not sure I understand. Say My pension and SS is $50K and my wifes SS is $15K. You are saying we would file a joint return for $65K in BOTH states then apply the Amount we paid to each state as a credit to the other states taxes? I believe PA TAXES are higher. Couldnt that wipe out the taxes owed to AZ? (say PA tax was 4k and Az tax was 3k. 4k minis 3k = -1k

[LeonardS]

Generally, if you and your spouse are filing a joint federal return but you work in or are residents of different states, you need to file separate state returns. Sometimes this is required by state tax law; other times it is to your best interest to not include your non-resident spouse's income on your state return. Otherwise both states may try to tax the same income. 

The calculations you need to do can be done in TurboTax online, but it is easier to do them with the desktop software.  And you can file up to 5 returns using the desktop software.  It will be tedious, but it is the best way to accurately minimize your taxes.

Please follow these instructions from TurboTax on this subject: 

1. You'll prepare one married filing jointly (MFJ) return to file with the IRS.
2. Prepare a "mock" married filing separate (MFS) tax return for each taxpayer. This is for your records only, and will be used to generate separate state returns for each person. The mock MFS returns are not filed.
3. Then for the first taxpayer, label and use the first "mock" married filing separate (MFS) federal return to prepare their state MFS return, using only their income and their half of the deductions from the MFJ federal return. This ensures that TurboTax only transfers the first taxpayer's income to their married filing separate state return. File this MFS state return, but not the mock federal return that it pulls the information from.
4. For the second taxpayer (spouse), label and use the second "mock" MFS federal return to prepare their state MFS return, again using only their income and their half of the deductions from the MFJ federal return.
   Again, file the second MFS state return, but not the second mock federal return that it pulls the information from.

Be sure to name each TurboTax federal return so you know the MFJ federal return to file, and which mock MFS federal and state return is for which person. 

Note:  State returns prepared using the "Mock" federal returns will require you to print and file your state return by mail

Posted by @KittyM.

[Naimu]

Perhaps someone at TT will notice this: because increasing number of people find themselves in the above-described situation, having returns prepared using the "Mock" federal returns will require you to print and file your state return by mail is extremely time-consuming and tedious. A much welcome improvement would be the capability to e-file separate state returns as MFS, when Federal has been e-filed as MFJ

[flht95]

Is filing "Married filing joint" federally but then "Married Filing Separately" for state legal? It sounds like is solves my problem but worry that it is allowed. Also, there is one other thing that muddies water not included in my first response. We sold 2 properties last year. One was a rental in Az we both jointly  owned. The other was a house in PA my wife solely owned. Based on you suggestion can I just split the gains and add them to both separate returns?

[ErnieS0]

Whether it’s legal to file separate state returns if you file a joint federal return depends on your states. 

States have different rules, but most states allow you to file separate state returns if one spouse is a nonresident.

Arizona and Pennsylvania both allow taxpayers to choose their filing status.

The profit from the sale of the AZ property would be split on both returns since it was jointly owned. 

Since the sale is taxed by both states, your would have to file two separate AZ returns if you file separate. Filing a joint AZ return may be better here.

The PA house is probably only on the PA return. AZ is a community property state, but a PA house would generally be separate property. You can claim a credit on the PA return for tax paid to AZ for half the property.

See Income Tax Issues Affecting Married and Divorced Taxpayers