My spouse and I live in separate states. We have a permanent residence in Michigan but I have recently started work in Indiana and have the majority of our joint income.

1. Can I claim Michigan residency if I am renting temporary living quarters in Indiana?

2. Can we file separate tax returns for the two different states to take advantage of our permanent residence taxes and mortgage?

3. Are we requiremd to divide our shared income between the two states?

If you are present in a state, then any income earned during this period, must be reported to the state.

To your resident state, you must report your worldwide income for the year.
Read: Your U.S. Tax Return: Working or Living in Two or More states (http://taxipay.blogspot.com/2008/06/working-in-two-or-more-states.html)