Publication 504
taxmap/pubs/p504-008.htm#en_us_publink1000176086If you are married and your domicile (permanent legal home) is in a community property state, special rules determine your income. Some of these rules are explained in the following discussions. For more information, see Publication
555.
taxmap/pubs/p504-008.htm#en_us_publink1000176087The community property states are:
- Arizona,
- California,
- Idaho,
- Louisiana,
- Nevada,
- New Mexico,
- Texas,
- Washington, and
- Wisconsin.
taxmap/pubs/p504-008.htm#en_us_publink1000176088If your domicile is in a community property state during any part of your tax year, you may have community income. Your state law determines whether your income is separate or community income. If you and your spouse file separate returns, you must report half of any income described by state law as community income and all of your separate income, and your spouse must report the other half of any community income plus all of his or her separate income. Each of you can claim credit for half the income tax withheld from community
income.
taxmap/pubs/p504-008.htm#en_us_publink1000176089The following discussions are situations where special rules apply to community
property.
taxmap/pubs/p504-008.htm#en_us_publink1000176090Community property laws may not apply to an item of community income that you received but did not treat as community income. You will be responsible for reporting all of it if:
- You treat the item as if only you are entitled to the income,
and
- You do not notify your spouse of the nature and amount of the income by the due date for filing the return (including
extensions).
taxmap/pubs/p504-008.htm#en_us_publink1000176091You are not responsible for the tax on an item of community income if all five of the following conditions exist.
- You did not file a joint return for the tax year.
- You did not include an item of community income in gross income on your separate
return.
- The item of community income you did not include is one of the
following.
- Wages, salaries, and other compensation your spouse (or former spouse) received for services he or she performed as an
employee.
- Income your spouse (or former spouse) derived from a trade or business he or she operated as a sole
proprietor.
- Your spouse's (or former spouse's) distributive share of partnership
income.
- Income from your spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Use the appropriate community property law to determine what is separate
property.
- Any other income that belongs to your spouse (or former spouse) under community property
law.
- You establish that you did not know of, and had no reason to know of, that community
income.
- Under all facts and circumstances, it would not be fair to include the item of community income in your gross
income.
taxmap/pubs/p504-008.htm#en_us_publink1000176092For information on how and when to request relief from liabilities arising from community property laws, see
Community Property Laws in Publication
971.
taxmap/pubs/p504-008.htm#en_us_publink1000176093In some states a husband and wife may enter into an agreement that affects the status of property or income as community or separate property. Check your state law to determine how it affects
you.
taxmap/pubs/p504-008.htm#en_us_publink1000176094If you are married at any time during the calendar year, special rules apply for reporting certain community income. You must meet
all the following conditions for these special rules to apply.
- You and your spouse lived apart all year.
- You and your spouse did not file a joint return for a tax year beginning or ending in the calendar
year.
- You and/or your spouse had earned income for the calendar year that is community
income.
- You and your spouse have not transferred, directly or indirectly, any of the earned income in (3) between yourselves before the end of the year. Do not take into account transfers satisfying child support obligations or transfers of very small amounts or
value.
taxmap/pubs/p504-008.htm#en_us_publink1000176096Treat earned income that is not trade or business or partnership income as the income of the spouse who performed the services to earn the income. Earned income is wages, salaries, professional fees, and other pay for personal
services.
Earned income does not include amounts paid by a corporation that are a distribution of earnings and profits rather than a reasonable allowance for personal services rendered.
taxmap/pubs/p504-008.htm#en_us_publink1000176097Treat income and related deductions from a trade or business that is not a partnership as those of the spouse carrying on the trade or
business.
taxmap/pubs/p504-008.htm#en_us_publink1000176098Treat income or loss from a trade or business carried on by a partnership as the income or loss of the spouse who is the partner.
taxmap/pubs/p504-008.htm#en_us_publink1000176099Treat income from the separate property of one spouse as the income of that
spouse.
taxmap/pubs/p504-008.htm#en_us_publink1000176100Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits.
taxmap/pubs/p504-008.htm#en_us_publink1000176101Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.
taxmap/pubs/p504-008.htm#en_us_publink1000176102George and Sharon were married throughout the year but did not live together at any time during the year. Both domiciles were in a community property state. They did not file a joint return or transfer any of their earned income between themselves. During the year their incomes were as
follows:
| | George
| | Sharon
|
Wages
| | $20,000
| | $22,000
|
Consulting business
| | 5,000
| | |
Partnership
| | | | 10,000
|
Dividends from separate property
| | 1,000
| | 2,000
|
Interest from community property
| | 500
| | 500
|
Totals | | $26,500
| | $34,500
|
| | | | |
Under the community property law of their state, all the income is considered community income. (Some states treat income from separate property as separate income—check your state law.) Sharon did not take part in George's consulting
business.
Ordinarily, on their separate returns they would each report $30,500, half the total community income of $61,000 ($26,500 + $34,500). But because they meet the four conditions listed earlier under
Spouses living apart all year, they must disregard community property law in reporting all their income (except the interest income) from community property. They each report on their returns only their own earnings and other income, and their share of the interest income from community property. George reports $26,500 and Sharon reports
$34,500.
taxmap/pubs/p504-008.htm#en_us_publink1000176105If you and your spouse are separated but do not meet the four conditions discussed earlier under
Spouses living apart all year, you must treat your income according to the laws of your state. In some states, income earned after separation but before a decree of divorce continues to be community income. In other states it is separate
income.
taxmap/pubs/p504-008.htm#en_us_publink1000176107When the marital community ends as a result of divorce or separation, the community assets (money and property) are divided between the spouses. Each spouse is taxed on half the community income for the part of the year before the community ends. However, see
Spouses living apart all year, earlier. Income received after the community ended is separate income, taxable only to the spouse to whom it
belongs.
An absolute decree of divorce or annulment ends the marital community in all
community property states. A decree of annulment, even though it holds that no
valid marriage ever existed, usually does not nullify community property rights
arising during the "marriage." However, you should check your state law for
exceptions.
A decree of legal separation or of separate maintenance may or may not end the marital community. The court issuing the decree may terminate the marital community and divide the property between the
spouses.
A separation agreement may divide the community property between you and your spouse. It may provide that this property, along with future earnings and property acquired, will be separate property. This agreement may end the
community.
In some states, the marital community ends when the spouses permanently separate, even if there is no formal agreement. Check your state
law.
taxmap/pubs/p504-008.htm#en_us_publink1000176109Payments that may otherwise qualify as alimony are not deductible by the payer if they are the recipient spouse's part of community income. They are deductible by the payer as alimony and taxable to the recipient spouse only to the extent they are more than that spouse's part of community income.
taxmap/pubs/p504-008.htm#en_us_publink1000176110You live in a community property state. You are separated but the special rules explained earlier under
Spouses living apart all year
do not apply. Under a written agreement, you pay your spouse $12,000 of your
$20,000 total yearly community income. Your spouse receives no other community
income. Under your state law, earnings of a spouse living separately and apart
from the other spouse continue as community property.
On your separate returns, each of you must report $10,000 of the total community income. In addition, your spouse must report $2,000 as alimony received. You can deduct $2,000 as alimony
paid.