California adjustments for community income

The income should be split the same on the federal return as on the CA return. Federal law recognizes community property law in most tax situations (perhaps all). Sounds like you need to fix your federal return first.

Drew Edmundson, CPA Cary, NC

Apparently they don't recognize community property for California domestic partnerships.

jenny had written this in response to

: Thanks for the input. My husband was a non resident alien up until November 2008 when he arrived on greencard. According to pub 555 it says that if one spouse is a non resident alien, that you disregard community law and report income separately.

100% of my income from Jan-Nov 1/2 my income from Nov-Dec 1/2 husband's income from Nov-Dec

and my husband would report

1/2 my income from Nov-Dec 1/2 husband's income from Nov-Dec

I believe california says that if one spouse is a resident, the other spouse (regardless of residency) is allocated 1/2 of the CA resident's income.

So according to CA rules we would each report

1/2 my income for the entire year 1/2 husband's income from Nov-Dec

Which rules do I follow?

Thanks!

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jenny wrote:

:

You really need to discuss this with a tax pro familiar with taxation of nonresident aliens, resident aliens, & dual status aliens and community property. Here is why: If one of two married people is a nonresident alien for part of the tax year, they can not file a married joint federal return. You would file as married separate and because he is a dual status alien who is a resident alien at the end of the year, he would file the same form as you as married separate and note that he is filing as a dual status alien. He could exclude his foreign source income for the period he was a nonresident alien. He just has to attach a statement or a copy of Form 1040NR that identifies his foreign source income that has been excluded on his normal US return. There are special rules relating to how dual status aliens file their tax returns. In lieu of that, you could both make the election to treat him as a resident alien for the whole year. You could then file a joint federal return. He would have to include his worldwide income on that return. If he paid income tax on his foreign source income to another country that is not on the US blacklist, he could calculate a foreign tax credit to be applied against his US tax. Once he established residency in CA as a resident alien (his residency start date is the first date present in the US as a lawful permanent immigrant (green card holder) your income became community (unless you have a pre or post-nuptial agreement that states your income is separate) and you split that income on your married separate tax returns.

Then you have to move on to filing in CA. That can also become complex especially if he emigrated from a country that had community property laws.

So.. as I believe you need to have a tax pro handle your federal return, you might as well toss in the CA return as well.

jenny had written this in response to

: Yes, I realize he has to file dual status and we are filing separately... I just need to know what the rule is on community income. Particularly if I should be splitting my CA resident income with him when he was a non-resident.

Anyone know the answer to this?

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:

California does not conform to the federal rules that disregard community property laws when one spouse is a NRA.

It is your domicile, not your residency (although often they are the same), that determine if community property rules apply to your income.

Yes, Schedule CA(540NR) would be the place to reflect California differences in income and deductions due to California tax law. Community income calculations should be handled line by line and not just lumped together on federal 1040 line 21.

As previously mentioned, this might a good job for a professional.

-Mark Bole

That sounds a bit too good to be true, but it's just my opinion.

How is that too good to be true? All the California income is going to be taxable to one spouse or the other, it's just a matter of whose MFS return it goes on. IOW, the spouse who is not a CA resident still has CA source income and a CA filing requirement if they "receive" more than minimal community income from the spouse who is domiciled in CA and earned income in CA.

-Mark Bole

jenny had written this in response to

: Yes, I am looking for a tax professional, but many are too busy to take my case so close to the extension due date, and some have even admitted they wouldn't know how to handle this situation anyway. In the mean time, I will try to figure it out the best I can. I may have to file this on my own so any advice is appreciated!

At this point, my best solution is to follow the federal laws for the federal return (disregard community property laws for the part of the year when my husband was a non resident alien, and split all income for the time he was a resident), and follow California law for my state return (split all California source income for the whole year for both of us).

Questions: Does this sound like an acceptable solution? Should I show the difference between federal and state in the CA540 Adjustments? And/or write a letter showing my calculations and explaining the differences? Anyone have a better idea?

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That clears things up, thanks.