42.15.206    ADDITIONS AND SUBTRACTIONS FOR MARRIED TAXPAYERS FILING SEPARATE RETURNS

(1) Except as provided in (2) and (3), married taxpayers who file a joint federal return but separate Montana returns must compute their taxable income using the federal rules for married taxpayers filing separately. Items clearly attributable to one spouse must be claimed by that spouse. An item not clearly attributable to one spouse must be divided equally unless the spouses enter into a binding written agreement providing a different division.

(2) The following items are exceptions to (1) as provided for in 15-30-111, MCA:

(a) Married taxpayers filing a joint federal return allowed a capital loss deduction under section 1211 of the Internal Revenue Code, 26 U.S.C. 1211, and who file separate Montana returns may claim the same amount of capital loss deduction allowed on the federal return. If the allowable capital loss is clearly attributable to one spouse, the loss must be shown on that spouse's return. If the loss is not clearly attributable to one spouse, the loss must be split equally between each return. The aggregate loss of spouses attributable to a capital loss can never exceed the amount of losses allowable for federal income tax purposes to spouses filing a joint federal income tax return for that loss. For example, spouse A has a $5,000 current year capital gain and spouse B has a $9,000 capital loss carried over from prior years for state purposes but which had been absorbed on their federal return in a prior year. If the spouses file in Montana as "married filing separately," spouse A should report the $5,000 capital gain on the appropriate line of the "Federal Income" portion of the return and report $5,000 as a "Capital Loss Adjustment" on Schedule II, Montana Subtractions from Federal Adjusted Gross Income. Spouse B should report $3,000 on the same line on Schedule II since the capital loss is attributable to them. Spouse B will then have a remaining capital loss carryover of $1,000 ($9,000 current capital loss less $8,000 used).

(b) Married taxpayers filing a joint federal return allowed passive and rental income losses are not required to recompute allowable losses according to the federal rules for married taxpayers filing separately under section 469 of the Internal Revenue Code, 26 U.S.C. 469. If the allowable loss is clearly attributable to one spouse, the loss must be shown on that spouse's return. If the loss is not clearly attributable to one spouse, the loss must be split equally between each return. The aggregate losses of spouses attributable to a passive loss or rental loss can never exceed the amount of losses allowable for federal income tax purposes to spouses filing a joint federal income tax return for that loss.

(c) Married taxpayers filing a joint federal return in which one or both of the taxpayers are allowed a deduction for an individual retirement contribution under section 219 of the Internal Revenue Code, 26 U.S.C. 219, and who file separate Montana income tax returns may claim the same amount of the deduction that is allowed on the federal return. The deduction must be attributed to the spouse who made the contribution. This provision does not affect any contributions made for tax years beginning before January 1, 2007.

(d) Married taxpayers filing a joint federal return who are allowed a deduction for interest paid for a qualified education loan under section 221 of the Internal Revenue Code, 26 U.S.C. 221, and who file separate Montana income tax returns may claim the same amount of the deduction that is allowed on the federal return. The deduction may be split equally on each return or in proportion to each taxpayer's share of federal adjusted gross income. This provision does not affect any interest paid during tax years beginning before January 1, 2007 for which the deduction was not allowed on the Montana tax return.

(e) Married taxpayers filing a joint federal return who are allowed a deduction for qualified tuition and related expenses under section 222 of the Internal Revenue Code, 26 U.S.C. 222, and who file separate Montana returns may claim the same amount of the deduction that is allowed on the federal return. The deduction may be split equally on each return or in proportion to each taxpayer's share of federal adjusted gross income. This provision does not affect any expenses paid during tax years beginning before January 1, 2007, for which the deduction was not allowed on the Montana tax return.

(3) For tax years beginning on or after January 1, 2009, married taxpayers filing a joint federal return and separate Montana returns may elect to report their capital gains and losses using one of the following options:

(a) The couple may elect to allocate the net gain or loss reported on page 1 (line 10 on Form 1040A or line 13 on Form 1040) of their joint federal return based on their ownership percentage. For example, if the couple reports a net capital gain of $10,000 on their joint federal return and they owned the asset equally, each spouse shall report $5,000 on their separate Montana returns. If only one spouse owned the asset, that spouse shall report $10,000 on the separate return. If the couple reports a net capital loss of $3,000 on their joint federal return and they owned the asset equally, each spouse shall report $1,500 on their separate Montana returns. If only one spouse owned the asset, that spouse shall report the $3,000 on their return and the other spouse shall report $0.

(b) The couple may elect to track their capital gains and losses individually and separately. If a federal net capital gain or loss is comprised of the capital gains attributable to one spouse offset by capital losses attributable to the other spouse, each spouse would report their separately calculated gain or loss. The maximum net capital loss deduction either spouse reporting a loss may claim would be limited to $1,500.

History: 15-30-2620, MCA; IMP, 15-30-2110, MCA; NEW, 2008 MAR p. 178, Eff. 2/1/08; AMD, 2010 MAR p. 1088, Eff. 4/30/10.