Split MFJ to Single

[Strongsilence-CPA]

I prepared an MFJ then split into 2 single returns. 

Results:

W-2 wages - which I designated as TP - were 50% of the correct wages on the split Taxpayer return.

Rental properties for the Spouse were carried into the split Taxpayer return.

Partnership K-1 designated as Spouse was carried into the split Taxpayer return.

Why did this happen and what did I do wrong?

[BobKamman]

Are you in a community-property state?

[sjrcpa]

Even if not, did you tell Lacerte you were?

[Strongsilence-CPA]

California.

The properties are separate properties.  Legally titled as separate to TP and Spouse. Doesn't that supersede community property rules?

[BobKamman]

Legal title is often irrelevant, when community-property questions arise in a divorce or probate context.  Are the expenses paid with community funds?  Does the income go into community accounts?  Were the spouses married when the properties were bought?  Even for tax returns, you might have to sort those out.  

If separate returns are being filed to avoid the California millionaire tax, expect the FTB to look at substance as well as form.  As for how to get Lacerte to do the split, someone here might have suggestions or a solution.  

[joshuabarksatlcs · Accepted solution]

Lacerte MFJ / MFS function was messed up. 

During the tax season I alerted them.  One way it messed up was that MFJ showed federal tax lower than MFS, but the MFJ/MFS worksheet showed a tax saving for MFS.  No idea if that was fixed.

You're in california.  The program default under User Option is set to Y for "Community property state?"  

Lacerte's computation under "Community property state rules"  generally splits Wages, Sch C and Sch E income 50/50.  Other items (interest etc) are carried to the respective spouse's MFS column/file.

You can override the "Community Property State Rules" on a return-by-return basis in Screen 3 Misc.  (As a matter of practice, I always follow the "Community Property rules" and skip the allocation of tax amounts on Form 8958 on MFS returns ONLY IF  I have a duly executed Separation of Property Agreement on file.  It could get ugly if they file for a divorce and take opposition positions on property settlement.)  Once you enter 1, all items would flow to the respective spouse's MFS column (and thus MFS files once you execute the split.)  

Miscellaneous

Screen 3; Code 23

Use this input field to override the User Option default for community property state allocation, on a return-by-return basis.

Select “1=no” to allocate all items according to the "taxpayer" and "spouse" designators. An entry of “1” will also suppress the Form 8958 for MFS filers with a filing address located in a community property state.

Select “2=yes” to net all wages and business income or loss and allocate 50% to each spouse on the MFJ/MFS worksheet. The program allocates all other income and deductions according to the "taxpayer" and "spouse" designators.    

[Strongsilence-CPA]

I neglected to say that these taxpayers are RDP in CA.  So, they are required file an MFJ/RDP in CA but file Single for Federal.  I'm sorry to omit that. 

I split the return to prepare Single, Federal 104s.  That means the allocations won't follow MFS rules and I think the legally separate properties must be reported on their 1040s.