How do I deduct the military spouse's income on the New Mexico return?

According to the New Mexico Taxation and Revenue Department, "The qualifying spouse’s income is taxed to the state of domicile instead of New Mexico where the income is earned.

To qualify for the Military Spouses Residency Relief Act:

1. The service member must have declared “legal residence for purposes of withholding state income taxes from military pay” in another state.
2. The service member must be in New Mexico in compliance with military orders
3. The service member’s spouse must be in New Mexico solely to be with their spouse."

To claim tax-exempt from New Mexico withholdings: 

To claim an exempt New Mexico withholding status based on the Military Spouses Residency Relief Act,  Form RPD-41348  must be submitted to an employer annually.

To claim a refund of taxes withheld from your New Mexico income, follow these steps in the program: 

1. State Section
2. Additions to Income 
3. NM Allocation and Apportionment of Income (PIT-B)
4. Select 'YES' to complete the NM PIT-B form
5. Allocation of Wages
6. Qualifying Non-resident Military Service member spouse income that is eligible to be excluded from Column B of the PIT-B
7. Enter the spouse's income from NM that is not taxable to NM.

Military Spouse income may be taxable on your state return where you file as a resident.