Filing federal income taxes when you live in a different state from your spouse

 Karin Price Mueller/The Star-Ledger  writes: Question. Can a married couple, one living in New Jersey and one living in Florida, file federal income taxes jointly? How much of a federal tax savings could one expect if the New Jersey house was sold under the above scenario?

Answer. Ah, you're buttering up the Brain with an easy question, then you're hitting us up with a hard one, eh?

Yes, a married couple with different states of permanent residence can file a joint federal tax return.

"For federal purposes they are married and this is completely allowed," said Douglas Duerr, a certified financial planner and certified public accountant with Duerr Financial Group in Montville.

Your second question relates to the potential exclusion of the capital gain on the sale of your residence in New Jersey.

The maximum exclusion is $250,000 for single individuals and $500,000 for married couples filing jointly, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Berkeley Heights.

But filing a joint return doesn't automatically get a married couple the full $500,000 exclusion, Maye said. They need to meet several requirements in addition to filing the joint return.

The other rules? One of the couple would need to have owned the house for two years, both spouses need to have lived in the house as their main home for at least two of the last five years and neither spouse may have excluded gain from sale of another home during the two-year period ending on the date of sale of the home.

Maye offered this hypothetical situation: Assume the home was sold for $800,000, and their basis was $300,000. Ordinarily, that would result in a capital gain of $500,000.

"If the couple meets all the rules then their capital gain for federal tax purposes would be zero because of the exclusion," he said.

But, assume for a moment that the spouse in Florida doesn't meet the "use test" of living for two out of the last five years in the property as their main home.

"If the spouse living in the New Jersey house meets all the requirements, they will still be entitled to a $250,000 exclusion," he said.

Duerr agreed, saying the key is determining if the non-New Jersey resident has used this home as their primary residence for two of the last five years.

"This will have a significant impact on the calculation of any possible federal capital gains upon the sale," he said.

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