Taxpayer asks:
What are community property states?
Taxgirl says:
Argh. This is like an evil bar exam question (my personal theory on community property states is that they exist just to confuse innocent law students on exams).
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
And though it’s not a state, Puerto Rico allows property to be owned as community property.
The idea of a community property state, more or less, is that property acquired during the marriage (except for gifts or inheritances) is owned jointly by both spouses and is divided upon divorce, annulment, or death. The definition of “property” extends to income – which means that, for tax purposes, spouses are treated as though they have one pot of money – and they must divide that income in half. This means that tax rules, as they applied to marital income, can be tricky. Thankfully, this tends to have more state tax consequences than federal ones (though in some cases, such as when you file a separate return, that’s not the case).
If you have questions about filing while in a community state, especially if you plan to file a separate return or have a separation agreement, I highly recommend checking with a tax pro!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
I remember when I discovered that only a few states had community property laws. Not that the hubby and I ever plan to split; after 27 years we just don’t have the energy for such a hassle! But even when we lived in non-CP locales, I told him that since we both were Texans and were married in the Lone Star State, other laws be damned. We were always going to operate as a community property couple. Since we’re back home, the point is moot.
That’s a Texan for you! 😉
Income taxes can be complicated if you file separately in a CP state but that’s nothing compared to the complications if you’re a registered domestic partner in CA. For federal purposes, you’re single but for state it’s either married filing joint or married filing separately using CP principles.
Estate planning is easier in a community property state and both halves of CP property get “stepped up” – that assumes that the FMV is higher!
Taxgirl, there ARE no “innocent law students”, and you know it.