Community Property States and Rules

Question 1

How does living in a community property state affect a tax return?

Answer 1

Property acquired after marriage and income generated are allocated evenly between spouses
Exception: inherited property

Question 2

How does the Texas Rule affect INCOME GENERATED on property that was acquired before marriage or inherited?

Answer 2

The income is considered community income and must be divided between the spouses
*Texas, Louisiana, Idaho use this method

Question 3

How does the California Rule affect INCOME GENERATED on property that was acquired before marriage or inherited?

Answer 3

The income is considered separate and would go on the return of the property owner.
* CA,AZ, NV, NM, WA, WI

Question 4

What are the:

1. Eight Community Property states
2. State with the Marital Property Act
3. State that allows taxpayers to opt-into community property rules

Answer 4

1. Community Property States: CA, NV, AZ, NM, TX, LA, WA, ID
2. Marital Property Act: WI
3. Opt -in: Alaska

Question 5

For spouses that did not file MFJ and lived apart all year, how is Earned Income allocated?

Answer 5

Allocate to the spouse who earned it

Question 6

For spouses that did not file MFJ and lived apart all year, how is Self-employment income allocated?

Answer 6

Allocate to the person who carries on the business

Question 7

For spouses that did not file MFJ and lived apart all year: how is Joint trade/business income allocated?

Answer 7

Allocate income and deductions based on spouses distributive share of trade/business

Question 8

For spouses that did not file MFJ and lived apart all year, how is separate property income allocated?

Answer 8

Generally, income goes to the owner for the property (California Rule.
Exception: TX, LA, ID - Texas rule applies (divide between spouses)

Question 9

IRC Section 66

Answer 9

Community property rules for married spouses that lived apart. Generally the spouse that earns the income will keep it