Splitting incomes & deductions in TP/SP joint names for MFS

[Raj1]

Splitting incomes & deductions in TP/SP joint names for MFS

May 26, 2020

Objective

Get support of Tax Rules and Forms to enable to split “equally” interest and dividend incomes and mortg int and property tax deductions of items held in joint names (Tax Payer (TP) & Spouse (SP)) between TP and SP who are filing MFS tax returns for the first time in 2019 after MFJ for last 10+ years.

Case Situation

Thanks for your time and patience to read all the facts detailed below.

The Tax Payer (TP–Age 66+) and his wife (Spouse-SP-Age 60+), both US Citizens and NYS Residents, have been filing joint tax returns for last 10+ years.

Effective Jan. 1, 2019, TP has retired with annual pension income of $12,000 + interest (Single A/c $5,000) + dividends (Single A/c $6,000) in his single and ($8,500) joint accounts with his name as first owner.  He will not take social security until 2021, estimated at $2,500 per month. 

SP intends to continue working her full time W-2 ($225,000) job in NY for next few years.

Both have firmly decided to file 2019 (and future years) tax return as MFS, whether tax efficient or not.  Both must either itemize or both must take std ded.

Whereas, some of the joint incomes / deductions have TP as first named holder and the SP as the second named holder, for some others, it is SP first and TP second. (Dividend $14,000 & Interest $1,000.)

All the accounts are in JOINT names with equal ownership and equal money funding by the TP/SP.  (Note: That means neither TP nor SP hold the accounts as “Nominee”.)

The TP (First Name) & SP (Second Name) Joint Incomes & Deductions are:

Incomes

• Dividends from few companies (Monthly Investment A/cs)
• Bank Interest (Some joint accounts)

Deductions

• Mortg Int (1099 Mortg Int) = $10,000 +$4,000 = $14,000.
• Real Estate Taxes (No Tax Doc issued by the County) = $18,000.

The SP (First Name) & TP (Second Name) Joint Incomes & Deductions are:

• 1099-Brokerage Dividends
• Dividends from few other companies (Monthly Investment A/cs)
• Bank Interest (Few other joint accounts)

Clarifications Required

Based on the facts and circumstances,

• For MFS tax returns, how to report split of joint income and deductions between TP and SP.  E.g. In community property state like CA, IRS Pub 555 stipulates IRS Form 8958 for allocation between TP & SP for Community States.  But NY is not a community State, so is there a similar form for NYS?
• If there is no IRS prescribed allocation form, will an excel file mimicking Form 8958 work if it is attached as a PDF to both the MFS tax returns during EFile?
• IRS Pub 550 page 18 middle column (and on several other pages) talks about “Nominee Distributions” and suggests cumbersome procedure of TP issuing 1099-Int / 1099-Div to the Spouse etc. and vice versa but in the same column in the subsequent para states “However, you do not have to file Form 1099-Int to show payments for your Spouse”.  
• Besides choice of allocation, do we have right under the IRS rules, to show the entire joint name income and/or joint name deduction only in one name of either the TP or the SP whose tax id of the two is shown in the tax docs?

Any thoughts / clarifications / updates would be highly appreciated.

Thanks and Regards.

Raj1