Community Property Question

[Kram BergGold]

My clients are CA residents. MFS may work for them due to medical payments. For all intents and purposes 100% of their income is community property so they will each claim 50%. He paid 80% of medical and she paid 20%. Do they each claim what they paid or is it split 50-50?

[DMICPA]

Mfs

It looks as though there is no point to MFS if the expenses cannot be deducted other than evenly in a Community Property state.

This applies to taxpayers that lived together all year. If they had a separate checking account, this may add some weight to the never commingled argument.

[joanmcq]

Split 50/50.

It rarely makes sense to file MFS in CA.

[DMICPA]

Maybe/maybe not

I have a CA client who was in a huge lawsuit from some tax shelter that went bad.

He is a single senior citizen. Well he got married again a few years ago and the wife has kept her property separate from his property because she does not want to become a party to some tax shelter trouble. She is pretty wealthy and wants to keep it.

Since they have never commingled their assets, and have never purchased any community property, they have been married filing separate. She has another tax preparer and I do the man.

We have a real valid reason for doing it this way and since everything is separate and they both are retired so no earnings, there is no community property.

So far it has worked.

[Gary2]

I have a CA client who was in a huge lawsuit from some tax shelter that went bad.

He is a single senior citizen. Well he got married again a few years ago and the wife has kept her property separate from his property because she does not want to become a party to some tax shelter trouble. She is pretty wealthy and wants to keep it.

Since they have never commingled their assets, and have never purchased any community property, they have been married filing separate. She has another tax preparer and I do the man.

We have a real valid reason for doing it this way and since everything is separate and they both are retired so no earnings, there is no community property.

So far it has worked.

So in CA, retirement income is by law separate property? Or is that federal? Would they have to have a third checking account if there were earned income (or some other contortion)?

[David1980]

So in CA, retirement income is by law separate property? Or is that federal? Would they have to have a third checking account if there were earned income (or some other contortion)?

Even if retirement income is community income that probably satisfies the exception for community income not treated as community income by one spouse.

Certain community income not treated as community
income by one spouse. Community property laws may
not apply to an item of community income that you received
but did not treat as community income. You are responsible
for reporting all of that income item if:
1. You treat the item as if only you are entitled to the income,
and
2. You do not notify your spouse of the nature and
amount of the income by the due date for filing the return
(including extensions).

[joanmcq]

That really doesn't apply unless you don't know what your spouse's income is. That is usually used when divorcing & you have no idea what your ex is doing.

In CA, if property like retirement is brought into the marriage and not commingled, it retains it's separate nature. And that's a case where MFS could work. Spouses can also draw up a separate property agreement to even transmute wages into separate property. Or, in the reverse, transmute separate property, such as retirement income or a rental into community.

[DMICPA]

Retirement Income

The retirement income I was referring to is income from Dividends and interest from acquisitions prior to marriage.

This is a late in life marriage and the parties had no intention of changing things to be Community. Everything was kept separate. I don't do both of the parties taxes. The wife has her own tax person and everything she owns is not going to the spouse.