The laws of the state in which you are domiciled generally govern
whether you have community property and community income or separate
property and separate income for federal tax purposes. Table 1
summarizes the general rules.
Community Property Laws Disregarded
The following discussions are situations where special rules apply
to community property.
Certain community income.
Community property laws do not apply to an item of community income
and you are responsible for reporting all of it if:
- You treat the item as if only you are entitled to the
- You do not notify your spouse of the nature and amount of
the income by the due date for filing the return (including
Relief from separate return liability for community income.
You are not responsible for reporting an item of community income
if all the following conditions exist.
- You do not file a joint return for the tax year.
- You do not include an item of community income in gross
income on your separate return.
- 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.
If you were married and filed a separate return in a community
property state and are now liable for an underpayment or
understatement of tax you believe should belong only to your spouse
(or former spouse), you may request equitable relief. To request
equitable relief, you must file Form 8857, Request for Innocent
Spouse Relief. Also see Publication 971.
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.
Nonresident alien spouse.
If you are a United States citizen or resident and you choose to
treat your nonresident alien spouse as a U.S. resident for tax
purposes and you are domiciled in a community property state or
country, use the community property rules. You must file a joint
return for the year you make the choice. You can file separate returns
in later years. For details on making this choice, see Publication 519,
U.S. Tax Guide for Aliens.
If you are a U.S. citizen or resident and do not choose to treat
your nonresident alien spouse as a U.S. resident for tax purposes,
treat your community income as explained next under Spouses
living apart all year. However, you do not have to meet the four
conditions discussed there.
Spouses living apart all year.
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
- 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 did not transfer, directly or
indirectly, any of the earned income in (3) between yourselves before
the end of the year. Do not take into account transfers of very small
amounts or value. Also, do not take into account a payment or transfer
to or for your dependent child, even though the payment or transfer
satisfies an obligation of support imposed on your spouse.
If all these conditions are met, you and your spouse must
report your community income as discussed next. See also Certain
community income, earlier.
Treat earned income that is not trade or business or partnership
income as the income of the spouse who performed the services. Earned
income means wages, salaries, professional fees, and other pay for
personal services. Earned income does not include any
social security or social security equivalent of tier 1 railroad
retirement benefits you receive during the year.
Trade or business income.
Treat income and related deductions from a trade or business that
is not a partnership as those of the person carrying on the trade or
Partnership income or loss.
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.
Separate property income.
Treat investment income from the separate property of one spouse as
the income of that spouse.
Social security benefits.
Treat social security benefits received during the year, including
the social security equivalent portion of tier 1 railroad retirement
benefits, as the separate income of the spouse who received them.
Treat all other community income, such as dividends, interest,
rents, royalties, or gains, according to the community property laws
of your state or country.
Daniel and Sharon were married throughout the year but did not live
together at any time during the year. Both were domiciled in Texas, a
community property state. They did not file a joint return or transfer
any earned income between themselves. During the year their incomes
were as follows:
|Consulting business fees
|Dividends from separate property
|Interest from community property
Under Texas community property laws, all of Daniel and Sharon's
income is considered community income. Sharon did not take part in
Daniel's consulting business.
Ordinarily, Daniel and Sharon would each report half the total
community income, $30,500 [($26,500 + $34,500) ×
2], on their separate returns. But because they meet the four
conditions discussed earlier, they must disregard community property
law when reporting their income, except the interest from community
property. They should report on their separate returns only their own
earnings and other income and their share of the interest from
community property. Daniel reports $26,500 and Sharon reports $34,500.