Community property laws in states like California affect how income is reported for federal tax purposes. Community property laws required that income earned by either spouse during the message is generally community income and must be split equally between both spouses when filing separate federal tax returns. Separate income is attributable only to the spouse who owns it.
Community income usually includes wages, salaries, and income from community property.
Separate income usually includes income from separate property owned by one spouse before marriage or acquired by gift/inheritance during the marriage.
When filing separate federal tax returns, spouses in community property states must allocate income and deductions according to community property laws. These are the community property additions and subtractions.
Wages and self employment income earned by either spouse generally have to be split evenly. You'd subtract half of your income and add half of your spouse's to make this adjustment. You can report this as a net addition or net subtraction depending on you and your spouse's income level.
For interest, dividends, gains, losses, and rents, whether these items need to be split depends on whether the property that generated the income is separate or community property.
Pension or retirement income may be community or separate property depending on when the recipient participated in the plan and whether it was while the recipient was in community with the spouse.
For more information, please review Publication 555, Community Property
