Which States Follow Community Property Rules
Nine states use community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. What counts is your domicile, meaning the state you treat as your permanent home. That state’s law decides which income belongs to both spouses and which belongs to one.
These rules also cover registered domestic partners in community property states. Partners report half of community income and use Form 8958, just like married couples filing separately. IRS Publication 555 explains both situations in more detail.
How Community Property Rules Split Income on Separate Returns
Once you know your state follows these rules, the next step is sorting each type of income into the right bucket.
Community Income vs. Separate Income
| Type | What it generally includes | How you report it on a separate return |
|---|---|---|
| Community income | Wages earned during marriage while domiciled in a community property state, and property acquired during marriage | Half on your return, half on your spouse’s |
| Separate property | Property owned before marriage, gifts or inheritances received separately and property bought with separate funds | All on the owner’s return |
Income From Separate Property
Income your separate property produces, such as interest or rent, depends on your state:
- Arizona, California, Nevada, New Mexico and Washington treat it as separate income.
- Idaho, Louisiana, Texas and Wisconsin treat it as community income.
Withholding and Expenses
Withholding is the income tax your employer takes out of each paycheck. If you report half of the community wages, you also get credit for half the tax withheld on those wages. Expenses you pay to produce community business or investment income are generally divided equally between you.
What You Need When Filing Separately
Splitting income changes what goes into each return in two ways:
- Each spouse attaches Form 8958 to show how community and separate amounts were allocated. The Form 8958 information page has the form and instructions.
- If one spouse itemizes deductions on a separate return, the other generally must itemize too.
Special Rules if You and Your Spouse Live Apart
Separated couples may qualify for different treatment of earned income. Special rules may apply if you meet every one of these conditions:
- You and your spouse lived apart all year.
- You didn’t file a joint return for the year.
- One or both of you had earned income that’s community income.
If you’re separated but don’t meet all of these conditions, check your state’s law. In some states, income earned after separation but before a divorce decree is still community income.
Separation can also leave you facing tax on community income. Innocent spouse relief rules explain when you may be relieved of that tax. To ask for equitable relief, you file Form 8857.
Should You File Separately in a Community Property State
Because you still split community income, filing separately in these states doesn’t fully separate your tax picture from your spouse’s. Joint returns usually result in lower tax, so compare both options before you decide. Knowing how filing status affects your tax bill is a good starting point.
From there, you can weigh when married filing separately is worth the extra paperwork.
