Federal taxes are only affected by community property laws if the taxpayers are married, living in a community property state and filing separate income tax returns. In this situation, ownership of income and division of expenses, deductions and exemptions must be determined. For federal tax purposes, the property is classified according to the laws of the state in which the taxpayer is domiciled (even though the taxpayer may be living temporarily in another state). Each spouse in a community property state is individually liable for the tax on one half of the community income, regardless of which spouse actually earns the income, and regardless of whether a joint or separate return is filed.
Community property is property and income received by a husband and wife during the marriage, with the exception of inheritances, specific gifts to one of the spouses, money earned in noncommunity property states, property acquired by recovery for personal injuries sustained by the spouse during marriage, and property and profits clearly traceable to property owned before marriage, all of which is separate property. Income from separate property is community income.
Community property is a concept which began in Spain to protect rich women from losing everything to their husbands, and is only officially recognized in nine states - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin - which were once under or influenced by Spanish or Mexican control.
Community property recognizes the equal contribution of both parties to the marriage even though one may earn more income through employment. By agreement or action the married couple can turn separate property into community property by commingling community and separate funds in one account. Community property is recognized based on fact or agreement of the parties, rather than holding of title. The state courts have wavered on what constitutes proof of community property, including the issue of whether joint tenancy is evidence of community property or not.
Community property is divided equally during divorce without regard to fault. Who inherits community property when there is no will varies from state to state. In some states, the surviving spouse inherits the property, and in other states the decedent's share goes to his or her descendants. In Texas surviving children get one half.
The information you obtain at this site is not, nor is it intended to be, tax advice. You should consult a licensed tax professional for individual advice regarding your own situation.
