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, the spouses must each follow these instructions if they live in any of the community property states listed.
Individuals considered Registered Domestic Partners (RDPs) 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):
Note. 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.
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. 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). This publication is also for registered domestic partners who are domiciled in Nevada, Washington, or California. Registered domestic partners in Nevada, Washington, or California generally must follow state community property laws and report half the combined community income of the individual and his or her registered domestic partner.
Registered domestic partners aren't married for federal tax purposes. They can use the single filing status, or if they qualify, the head of household filing status.
Tip: You can find answers to frequently asked questions by going to IRS.gov/Pub555 and clicking on Answers to Frequently Asked Questions for Registered Domestic Partners and Individuals in Civil Unions under Other Items You May Find Useful.