Married couples work and live in different state, how to handle state returns?

[tetrazine]

I and my wife worked and lived in different states for last year. I worked and lived in DE while she is in CA. We just tried to use Turbotax to do federal MFJ but then it will treat us MFJ with either DE or CA state taxes and we owe each state huge amount of money. Then we have to do MFS for federal in order to generate a correct state return in Turbotax, but it turns out we have to pay more for federal tax compared with MFJ.

So I am wondering how to handle state returns under this situation? I did read some post mentioned using a mock method to handle state taxes separately. But per CA tax law, you need to use the same filing status as you file your federal. I don't know if this Mock method is legal for file CA state taxes.

[JotikaT2 · Accepted solution]

California does provide an exemption to filing using married filing jointly if either of the following are true:

• One spouse was an active member of the US armed forces during the year or
• One spouse was a nonresident for the entire year and had no income from California sources during the year

If either of the above applies to your situation, you can file in CA as married filing separately even though you file as married filing joint for federal purposes.

[northend83]

My job is relocating me to IL; however, my wife plans to stay back 12-15 months due to family matters. My wife does not work and plans to live in our primary residence (RI - purchased in June 2000) while renting an apartment (IL). She will travel back and forth. We do plan on selling our house eventually. I don't understand how the taxes will work and if and when we sell the house, do we meet the requirement of 2-year capital gains tax avoidance on the home?

[AmyC]

@northend83

Generally, the first year that you move is determining if that is really the job for you and will it be permanent, meaning that it lasts more than a year. 

You can maintain your vehicle license, voting, etc in RI for the first year. IL considers you a resident if you were there the entire tax year. Otherwise, you can file as a nonresident or part-year.

Once you decide this is a permanent move and the family is coming, you can change things and become an IL resident. This gives you up to 3 years to sell your RI house and keep the 2/5 years residence requirement.

[Sam Hopi]

Hi @JotikaT2 

If  wife lives and works all the year in Oregan and husband lives and works in Texas all the year in primary house and both has W-2 (non-military) how can file tax return?

Thanks for help.

[DMarkM1]

According to the OR Department of Revenue (extracted below), you may use the OR non-resident status if you file a joint return and either you or your spouse are nonresidents. 

In the "My Info"  section indicate that both you and your spouse lived in TX on 31 Dec and you did not live in any other states. Also verify that "Married Filing Joint" is indicated.  

Still in the "My Info" section scroll down to "Other State Income" and answer "Yes" you earned income in another state and select OR from the menu.  This will generate the OR non-resident return.

In the OR interview you will allocate only your income to OR so that OR only taxes the OR source income.  Since TX does not have a state income tax there will not be any returns filed there.

"Use Form OR-40-N to report your income from Oregon sources if any of these are true:

• You are a resident of another state, you don't maintain a home in Oregon (or if you do maintain a home in Oregon, you didn't spend more than 200 days in Oregon during the tax year), and you had income from an Oregon source. 
• You're a special-case Oregon resident.**
• You're married and filing a joint return and you or your spouse are a nonresident.
• You or your spouse meet the military personnel nonresident requirements.
• You qualified as an Oregon resident living in a foreign country** for the entire year."