Separate Primary Residence Filing Jointly

vsop4me

My wife and I file jointly and our primary residence is in CO where we jointly own the home. I have a second home in CA that my brother and I purchased for my parents and that home does not include my wife as owner, just brother and I. Both homes have been purchased more than 5 years (CA home for 20 and CO for 5 yrs)

I plan on moving there for most of the year to help my parents who are very old for the next 2-3 years. They will likely stay in the home for no more than 2-3 years, we haven't figured it out exactly. When we sell that home in CA, I want to avoid paying the capital gains tax but because I am married and filing jointly with my wife, I don't know if the IRS will allow me to identify primary residence as CA and wife in CO for the same year.

Thanks and appreciate and help.

KristineS

Hi vsop4me,

Thanks for writing in with your situation. That's a very nice thing to move to help your elderly parents.

I recommend some thoughtful tax planning to understand both the intended and unintended consequences of your move. Here are some considerations to take into account including residency, filing status, and general state tax return filing requirements.

If you live in California you're taxed on all income regardless of source and will file either a part-year resident return or full-year resident return depending on when you move, assuming you meet income, age, etc., filing requirements.

For California, according to 2023 CA FTB Publication 1031 you may meet the exception to file married filing separately:

"If you file a joint return for federal purposes, you may file separately for California if either spouse (emphasis added) was one of the following:
• An active member of the United States armed forces or any auxiliary military branch during 2023.
• A nonresident for the entire year and had no income from California sources during 2023."

Assuming your wife lives only in Colorado for the year and has no income from California sources you'd file married filing separate for 2024.

However, for Colorado, according to the Colorado Income Tax Guide:

• "An individual’s filing status for Colorado income tax purposes is the same as their filing status for federal income tax purposes. If two taxpayers file a joint federal return, they must file a joint Colorado income tax return. Married taxpayers who file their federal income tax returns separately must also file their Colorado income tax returns separately."

• "Taxpayers who file a joint federal return must file a joint Colorado return, even if they are not residents of the same state. If only one of the taxpayers included in joint return is a Colorado resident, they must complete and file a Part-Year Resident/Nonresident Tax Calculation Schedule (DR 0104PN) with their return."

You may be able to take a credit on your Colorado state tax return for taxes paid to California.

Your California house is an investment property you jointly own with your brother. When sold, in theory you'd be splitting capital gains tax with him, and that would be a long term gain it sounds like. If there's a gain, you won't be able to avoid capital gains tax based on the description of your situation as co-owners. If there's a loss, you'll claim up to a $3000 loss ($1500 if married filing separate) and carryforward the remainder loss in successive years.

FreeTaxUSA tax software can handle all of the above situations.