How to handle capital gains on brokerage accounts when married filing separately?

This is actually a really good tax planning question! When you're married filing separately, the IRS generally treats property according to the state you live in. If you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, or WI), you might be able to report half the capital gains on each return regardless of whose name is on the account, since most assets acquired during marriage are considered jointly owned. If you're in a common law state, then assets are typically treated as belonging to the person whose name is on the account. In your case, selling from your brokerage account would put the capital gains on your return only. You have a few options: You could gift her some of the securities before she sells them (you can gift up to $18,000 tax-free per person in 2025), add her to the account (though this may still not change whose income it is), or consider opening a new joint account and transferring some assets there. The Roth conversion for her IRA is actually a solid alternative use of her lower tax bracket too!

I was in a pretty similar situation last year with my spouse's student loans on an income-driven plan. I discovered taxr.ai (https://taxr.ai) which really helped us figure out the asset transfer rules for our situation. I was confused about whether I could just give my spouse some investments without triggering gift taxes. The tool analyzed our specific scenario and showed that I could gift up to the annual exclusion amount without filing any special forms. It also helped us understand the basis rules to make sure we weren't creating a bigger tax problem than we were solving. Really cleared up the confusion about how my state's property laws affected our filing separately strategy.

I wanted to follow up about using taxr.ai that I asked about earlier. I decided to try it for our situation with filing separately in California, and it was actually super helpful! The tool explained exactly how community property rules would affect our capital gains from stocks. I learned that in California, even though my husband's brokerage account is in his name only, the capital gains are still considered community property if the investments were purchased during our marriage with joint funds. We need to split those 50/50 on our separate returns! This saved us a bunch of headache because we were about to just report it all on his return, which would have been incorrect. Now we have documentation to support our filing position if we ever get questioned. Definitely worth checking out if you're confused about married filing separately rules!

I had a nightmare situation trying to figure out exactly this same issue last year. Called the IRS multiple times to clarify the gift rules between spouses when filing separately and could never get through. Finally found Claimyr (https://claimyr.com) and watched their demo (https://youtu.be/_kiP6q8DX5c) - they got me connected to an actual IRS agent in about 20 minutes. The agent confirmed that in my non-community property state, I needed to actually transfer ownership of the securities before the sale for the gains to count on my spouse's return. Just adding them to the account wasn't enough - the transfer had to be documented. Saved me from making a mistake that could have triggered an audit.

I need to follow up on my skeptical comment about Claimyr. I decided to try it because I was desperate to talk to someone at the IRS about my capital gains reporting issue when filing separately from my wife. I'm honestly shocked that it worked. Got a call back in about 40 minutes with an actual IRS agent on the line. The agent walked me through exactly how to document transferring securities between spouses when filing separately and confirmed I needed a proper gift transfer with documentation before the sale for it to count on my wife's return. Would have taken me weeks more of trying on my own. Ended up saving us about $2,900 in capital gains tax by properly executing the transfer to take advantage of my wife's lower bracket. Sometimes my skepticism gets in the way of finding good solutions!

One thing nobody mentioned yet - if you're doing married filing separately, remember that if one spouse itemizes deductions, the other spouse MUST also itemize even if taking the standard deduction would be better. This can really mess up your tax strategy if you're not careful! Also, you'll lose several tax benefits when filing separately: student loan interest deduction, education credits, child and dependent care credit, and the full IRA contribution deduction. Make sure your student loan savings actually outweigh these lost benefits.

Just wanted to share that I did something similar with my wife - we used her 0% capital gains bracket by gifting her some of my appreciated stocks before selling. The key thing our accountant told us was to maintain a clear paper trail: 1. Document the gift with a simple gift letter 2. Actually transfer the shares to an account in her name (not joint) 3. Wait at least a few days (preferably longer) before selling 4. Keep records showing she received the proceeds The IRS looks at substance over form, so you need to show a real transfer happened. Don't just sell and then say "oh that was actually hers" after the fact.

This is a great strategy question! I went through something very similar with my spouse's student loans. One thing I learned that might help - if you're in a common law state, the timing of the gift transfer is really important for tax purposes. What worked for us was opening a new brokerage account in her name only, then doing an "in-kind" transfer of the specific lots with the lowest cost basis (highest gains) that we wanted to harvest. This created a clear paper trail and avoided any ambiguity about ownership. The key was doing this transfer well before the end of the tax year, then having her sell the shares from her own account. We also made sure to keep detailed records of which specific tax lots were transferred and when. One bonus tip: if you're doing this strategy, consider using tax-loss harvesting in your own account at the same time. Since you're filing separately, you can't offset her gains with your losses, but you can still reduce your own tax liability. Just make sure to watch out for wash sale rules if you're dealing with similar securities. The Roth conversion idea is solid too - sometimes it's easier to execute and you avoid all the transfer complexity. Good luck with the house purchase!

Great question, and you've gotten some solid advice here! I want to emphasize one point that's crucial for your situation: the IRS is very strict about the "substance over form" doctrine when it comes to income splitting between spouses filing separately. Since you mentioned the brokerage account is only in your name, simply adding your wife to the account typically won't change the tax reporting for securities already held there. The gains would still be considered yours for tax purposes because you were the original owner when the appreciation occurred. Your best bet is likely the gift approach others mentioned, but here's what you absolutely need to get right: 1. Complete a proper gift transfer to an account solely in her name BEFORE any sale 2. Document the gift with a written gift letter including dates and fair market values 3. Wait a reasonable period (at least 30 days) between the gift and sale to establish clear ownership 4. Have her initiate and receive proceeds from the sale directly The annual gift exclusion for 2025 is $18,000 per person, so you can gift up to that amount in securities without any gift tax implications. One alternative to consider: if your wife has any traditional IRA funds, the Roth conversion strategy you mentioned might actually be simpler to execute and achieve similar tax bracket optimization without the transfer complexity. Plus, you'd be building her retirement savings while taking advantage of her lower bracket. Would definitely recommend running the numbers on both strategies to see which gives you the better overall outcome!

Just wanted to add another perspective on this since I work in tax prep and see these situations regularly. While the gift strategy and Roth conversion are both solid options, there's one more thing to consider: the timing of your house purchase. If you're planning to buy a house in the near future (within the next 1-2 years), you might want to think about spreading the capital gains realization across multiple tax years rather than doing it all at once. Even with your wife's 0% bracket, there are limits to how much can fit in that bracket each year. For 2025, the 0% capital gains bracket for married filing separately goes up to $47,025 in taxable income. So if your wife has earned income plus the capital gains, make sure the total doesn't push her into the 15% bracket. You could potentially do partial sales over 2025 and 2026 to maximize the 0% treatment. Also, don't forget about the net investment income tax (NIIT) - though at her income level it's probably not a concern, it's worth double-checking if you're doing large conversions or sales. The Roth conversion really is looking like your best bet given the simplicity and the fact that you're building long-term wealth. Sometimes the path of least resistance is also the smartest one!