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Topic: Community Property States - Federal Allocation Record - Married Filing Separately

IRS Publication 555 Community Property addresses income and deduction reporting for individuals and their spouse/partner living in a community property state. It outlines when an individual filing separately from their spouse/partner must report half of their combined community income and deductions in addition to their separate income and deductions.

Community Property States include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. For individuals considered married for federal tax purposes (a legal union between a man and a woman), the spouses must each follow these instructions if they live in any of the community property states listed. For individuals considered Registered Domestic Partners (RDPs) (and for individuals in California who, for state law purposes, are married to an individual of the same sex), they must follow these instructions if they live in Nevada, Washington, or California. See the publication for additional information if you are unsure whether you need to follow these instructions.

The TaxACT program cannot automatically calculate the allocation between each spouse's or partner's return because the two returns are not linked in any way. This is true whether the filing status is single, head of household, or married filing separately. Each taxpayer must determine the applicable split of income and deductions and then enter the appropriate amount in the federal program for their own return.

Create two W-2s for the taxpayer on the return. One should contain the taxpayer's W-2 entries divided by two (50%), and one should contain the spouse's/partner's W-2 entries divided by two (50%). This second W-2 will be entered using the taxpayer's name with the spouse's/partner's employer information.

Follow the same method to enter the income on the spouse's/partner's return.

List only your allocated share of the income and deductions on the appropriate lines of your separate tax returns (interest, dividends, etc.). Refer to IRS Publication 555 Community Property for information regarding which income and expenses are considered community property, and which are considered separate property.

Form 8958 Allocation of Tax Amounts Between Certain Individuals in Community Property States allocates income between spouses/partners when filing a separate return. To enter Form 8958 in the TaxACT program (this allocation worksheet does not need to be completed if you are only filing the state returns separately and filing a joint federal return):

From within your TaxACT return (Online or Desktop), click on the Federal Q&A tab
Click Miscellaneous Topics to expand the category and then click Community property allocation record (Form 8958)
Click Yes to complete or modify the Community Property Allocation Record

Note that if your address in the return is not within a community property state you will not see the Community property allocation record option after clicking on Miscellaneous Topics.

Additional Information:

Per IRS Publication 555 Community Property:

Community property laws affect how you figure your income on your federal income tax return if you are married, live in a community property state or country, and file separate returns. For federal tax purposes, a marriage means only a legal union between a man and woman as husband and wife and the word "spouse" refers only to a person of the opposite sex who is a husband or a wife. If you are married, your tax usually will be less if you file married filing jointly than if you file married filing separately. However, sometimes it can be to your advantage to file separate returns. If you and your spouse file separate returns, you have to determine your community income and your separate income.

Community property laws also affect your basis in property you inherit from a married person who lived in a community property state.

Registered domestic partners (RDPs) and same-sex spouses. This publication is also for RDPs who are domiciled in Nevada, Washington, or California and for individuals in California and Washington who, for state law purposes, are married to an individual of the same sex. For 2010 and following years, a RDP in Nevada, Washington, or California (or a person in California or Washington who is married to a person of the same sex) generally must follow state community property laws and report half the combined community income of the individual and his or her RDP (or California or Washington same-sex spouse).

These rules apply to RDPs in Nevada, Washington, and California in 2010 and following years because they have full community property rights in 2010. Nevada RDPs attained these rights as of October 1, 2009. Washington RDPs attained them as of June 12, 2008, and California RDPs attained them as of January 1, 2007. For years prior to 2010, RDPs who reported income without regard to the community property laws may file amended returns to report half of the community income of the RDPs for the applicable periods, but are not required to do so. If one of the RDPs files an amended return to report half of the community income, the other RDP must report the other half.

RDPs (and individuals in California and Washington who are married to an individual of the same sex) are not married for federal tax purposes. They can use only the single filing status, or if they qualify, the head of household filing status.