If 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_publink1000176087
The community property states are:
- New Mexico,
- Washington, and
If 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_publink1000176089
The following discussions are situations where special rules apply to community property.taxmap/pubs/p504-008.htm#en_us_publink1000176090
Community 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).
You 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.
For 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_publink1000176093
In 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_publink1000176094
If 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.
Treat 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_publink1000176097
Treat 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_publink1000176098
Treat 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_publink1000176099
Treat income from the separate property of one spouse as the income of that spouse.taxmap/pubs/p504-008.htm#en_us_publink1000176100
Treat social security and equivalent railroad retirement benefits as the income of the spouse who receives the benefits. taxmap/pubs/p504-008.htm#en_us_publink1000176101
Treat 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_publink1000176102
George 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.
If 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.
When 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_publink1000176109
Payments 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_publink1000176110
You 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.