Married taxpayers who choose to file separately must follow special IRS rules in order to reduce their Social Security benefit tax liability. One caveat is that they cannot live at the same address.

A married taxpayer who files a separate return and who lived with his or her spouse at any time during the year will generally be taxed on up to 85% of Social Security benefits. See line 8 of the worksheet above, which is effectively zero, unless the taxpayer and spouse lived apart all year. The Tax Court has held that separate-filing spouses must live in separate residences to qualify as living apart, so that a smaller amount of their Social Security benefits would be includible in their gross incomes. Meaning of “lived apart” - The Tax Court concluded that living apart under Code Sec. 86 means living in separate residences. (McAdams, (2002) 118 TC No. 24))

It is not uncommon for one elderly spouse to live in a nursing home for the entire tax year while the other spouse lives in the marital residence with all mail for both spouses going to the marital residence. The spouse in the nursing home clearly should be considered to live in a separate residence. On the other hand, the substantial medical deduction may preclude taxpayers from filing separately.