My wife and I have been living in two separate states due to our emplouyment situation. She lives and works in Ohio. I moved to Iowa from Ohio for work in December of 2009. We now own houses in both states now and maintain two residences. What is the best method for filing taxes both State and Federal? In the past we have always filed jointly until this situation.

You will probably still want to file as Married Filing Jointly (MFJ) for your federal return. As for the state returns:

1. For Ohio, you must file as MFJ if you file your federal as MFJ, and report all income (including yours). But you use Schedule D to take a credit for any non-OH source income (namely your wages). See instructions on page 15:
http://tax.ohio.gov/documents/forms/ohio_individual/individual/2010/PIT_IT1040_Instructions.pdf

2. For Iowa, you can file status 3 or 4, but you also need to report all income, aportioned between you and your wife. Take a credit for taxes on your wife's non-IA source income using form IA 126.

Don't be put off by having to report all your joint income to both states - because of the credits you end up paying taxes to each state only on the income attributable to that state.