allocating joint income on separate returns

[Hahn1040]

taxpayers have always filed jointly

this year I am exploring MFS based on the child tax credit

they had been receiving $3,000 for the 3 children 

this year it is reduced to $950  because :  oldest turned 17 and AGI is over $110,000

 

If I give her the two younger children, she gets the $2,000 child tax credit

 

My questions is: can I give her all of the investment income from the joint mutual fund?

the fund had $7,500 cap gain distribution

she is in the 15% bracket, so it is taxed at 0%

he is in the 25% bracket so it is taxed at 15%

 

at first, I gave them each half.... but if I give the whole thing to her, it saves over $500

 

I would put the div ($109) on his sched B and then nominee it to her.  The c/g distr just goes on line 13 so no good way to report it on his but assign it to her

 

They live in INDIANA if that matters...

 

Any thoughts would be greatly appreciated!

Laura

 

 

[FreedomTaxed]

Here's a good quote that should sum it up:

 

"Section 61 of the Internal Revenue Code requires a taxpayer to include in gross income all income from whatever source derived. Taxation of the income from jointly-held property is determined in accordance with state law for deciding who is entitled to the income from the property. If each spouse has an equal right to the income from the property, the usual rule is that one-half of the income from the property is properly taxable to each spouse. Thus, each spouse is obligated to include in his or her gross income any amount which he or she received, either actually or constructively, as income from mutual funds and interest on bank deposits."

 

Source: http://www.lifemanagement.com/fsa6.2.881/

 

So if the couple had equal rights to the joint financial asset, the only legal income split from the joint financial asset is one-half.