It’s a holiday week, so I’m re-publishing popular blog posts from the past. This oldie-but-goodie from 2012 is about the Iowa married filing separately filing status, which has a lot of quirks. One of those quirks is a requirement to allocate itemized deductions between spouses based on Iowa net income.
Married couples in Iowa who both have income will usually find that one of the “separate” filing statuses is the best to use on their Iowa taxes, rather than filing a joint Iowa return. The reason is, Iowa has just one tax bracket regardless of filing status, so two people filing a joint return will be taxed on their combined incomes at a high point in Iowa’s highly progressive tax bracket. Filing separate returns allows each spouse to be taxed at a lower point in the tax bracket.
Iowa offers two “separate” filing statuses — married filing separately on a combined return, and married filing separately on separate returns. A more thorough discussion of the differences between the two statuses is for another blog post on another day. The main point I want to make today is: under either of the separate filing statuses, you must allocate itemized deductions based on income.
When a married couple files separately on their Iowa returns — either on a combined return or on a completely separate return — the couple MUST share itemized deductions based on income. This is true even if one spouse made 100% of the payments from their own separate funds.
John and Jane are married in Iowa and file their Iowa taxes as married filing separately. John’s income is $50,000. Jane’s income is $25,000. On the Iowa return, John must claim 2/3 of the itemized deductions ($50,000 income/$75,000 total income of the couple) and Jane must claim 1/3 of the itemized deductions, regardless of who actually made the payments or whether the payments relate to separately held property.
This is a different concept from the married filing separately filing status on federal taxes. On a “separate” federal 1040, the itemized deductions generally go to whoever actually made the payment.