In a community property state the income and property that you and
your spouse acquire during your marriage is usually community property. Even if legal
title is in one spouses name you each own one half. (There are some exceptions).
For tax purposes, income and income tax refunds in community property
states are considered to belong half to each spouse regardless of who
actually earned the income. (There are some exceptions).
Generally, the following does not become community property and remains
separate property:
 | property owned before the marriage; and |
| property received during the marriage by one spouse as a gift or inheritance from a
third party. |
How income from separate property is treated is determined by state law.
Currently, the following states are community property states:
| Arizona |
| California |
| Idaho |
| Louisiana |
| Nevada |
| New Mexico |
| Texas |
| Washington |
| Wisconsin |
Because income and income tax refunds in community property states are
considered to belong one half to each spouse, if a husband and wife file separate
tax returns they each have to report one half of the income on each tax return regardless of who
earned it.
To avoid this tax rule the following
tests must be met:
| the spouses must have lived apart for the entire
tax year; |
| none of the income may be transferred in any way between spouses (transfers for child
support do not count); |
| the spouses cannot file a joint
tax return. |
If the above tests are met the income
on the tax returns is allocated as follows:
| earned income other than business and partnership income is taxable to the spouse who
earned it on his/her tax return; |
| business income is taxable to the spouse who carried on the
business on his/her tax return; |
| partnership income is taxable to the spouse who is entitled to a distributive share of
partnership profits on his/her tax return. |
Tax returns of married taxpayers filing separate from a community property state are
not eligible for the IRS e-file program. An exception is made for tax returns with military
indicators.
Community property rules are tricky and anyone considering the above should definitely
consult with a Certified Public Accountant, Enrolled Agent, Attorney, or other tax
advisor.
|
Community
Property. Also see
IRS 
