State Residency Rules? - Spidell

State Residency Rules?

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Message Board State Residency Rules?

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    • #257652
      Henry Goff
      Participant

      We have a client that is married and they own property in both California and in New Mexico. Based on the residency rules, one spouse is the primary resident of California and the other, New Mexico. Should they file MFS? What would be the proper way to handle this situation without scrutiny?

    • #257737
      Mark Bole
      Participant

      It doesn’t matter where they own property, where do they derive income?  It will be much easier to file MFJ (along with lower tax prep fees), and the overall tax will probably be lower too. (Don’t forget federal effects of filing MFS, since in CA at least, the state filing status and federal filing status must be the same with very limited exceptions).  Since both states are community property states, there is likely to be some double-taxed income even if filing MFJ, but since there is an Other State Tax Credit available, that shouldn’t really matter.  (The reason is, source income taxed to one spouse by one state is going to be 50% allocated to the other spouse and taxed also by the state where the other spouse is resident).

      To your last comment about “avoiding scrutiny” — just report income accurately and then you should have no fear of scrutiny.

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