Irs Publication 555 - Community Property (Page 5 of 17) in pdf

community property state or in a noncommunity property

it is merely a passive investment in a separate property

state during the total period of participation in the pension.

partnership, the partnership income will be characterized

See the example under

Civil service

retirement, later.

in accordance with the discussion under

Income from

These rules may vary between states. Check your state

separate

property, later.

law.

Tax-exempt income. For spouses, community income

Lump-sum distributions. If you were born before Jan-

exempt from federal tax generally keeps its exempt status

uary 2, 1936, and receive a lump-sum distribution from a

for both spouses. For example, under certain circum-

qualified retirement plan, you may be able to choose an

stances, income earned outside the United States is tax

optional method of figuring the tax on the distribution. For

exempt. If you earned income and met the conditions that

the 10-year tax option, you must disregard community

made it exempt, the income is also exempt for your spouse

property laws. For more information, see Publication 575,

even though he or she may not have met the conditions.

Pension and Annuity Income, and Form 4972, Tax on

RDPs and same-sex married couples in California should

Lump-Sum Distributions.

consult the particular exclusion provision to see if the

exempt status applies to both.

Civil service retirement. For income tax purposes,

community property laws apply to annuities payable under

Income from separate property. In some states, income

the Civil Service Retirement Act (CSRS) or Federal Em-

from separate property is separate income. These states

ployee Retirement System (FERS).

include Washington, Nevada, California, Arizona, and New

Whether a civil service annuity is separate or commu-

Mexico. Other states characterize income from separate

nity income depends on your marital status (or your status

property as community income. These states include

as a RDP/California same-sex spouse) and domicile of the

Idaho, Louisiana, Wisconsin, and Texas.

employee when the services were performed for which the

annuity is paid. Even if you now live in a noncommunity

Exemptions

property state and you receive a civil service annuity, it

may be community income if it is based on services you

When you file separate returns, you must claim your own

performed while married (or during the registered domestic

exemption amount for that year. (See your tax return in-

partnership/same-sex marriage in California) and domi-

structions.)

ciled in a community property state.

You cannot divide the amount allowed as an exemption

If a civil service annuity is a mixture of community

for a dependent between you and your spouse (or RDP/

income and separate income, it must be divided between

California same-sex spouse). When community funds pro-

the two kinds of income. The division is based on the

vide support for more than one person, each of whom

employee’s domicile and marital status (or RDP/California

otherwise qualifies as a dependent, you and your spouse

same-sex marital status) in community and noncommunity

(or RDP/California same-sex spouse) may divide the num-

property states during his or her periods of service.

ber of dependency exemptions as explained in the follow-

ing example.

Example. Henry Wright retired this year after 30 years

of civil service. He and his wife were domiciled in a commu-

Example. Ron and Diane White have three dependent

nity property state during the past 15 years.

children and live in Nevada. If Ron and Diane file sepa-

Since half the service was performed while the Wrights

rately, only Ron can claim his own exemption, and only

were married and domiciled in a community property state,

Diane can claim her own exemption. Ron and Diane can

half the civil service retirement pay is considered to be

agree that one of them will claim the exemption for one,

community income. If Mr. Wright receives $1,000 a month

two, or all of their children and the other will claim any

in retirement pay, $500 is considered community in-

remaining exemptions. They cannot each claim half of the

come —half ($250) is his income and half ($250) is his

total exemption amount for their three children.

wife’s.

Military retirement pay. State community property

Deductions

laws apply to military retirement pay. Generally, the pay is

either separate or community income based on the marital

If you file separate returns, your deductions generally de-

status and domicile of the couple while the member of the

pend on whether the expenses involve community or sepa-

Armed Forces was in active military service. For example,

rate income.

military retirement pay for services performed during mar-

Business and investment expenses. If you file separate

riage and domicile in a community property state is com-

returns, expenses incurred to earn or produce:

munity income.

Active military pay earned while married and domiciled

•

Community business or investment income are gen-

in a community property state is also community income.

erally divided equally between you and your spouse

This income is considered to be received half by the

(or RDP/California same-sex spouse). Each of you is

member of the Armed Forces and half by the spouse.

entitled to deduct one-half of the expenses on your

separate returns.

Partnership income. If an interest is held in a partner-

•

ship, and income from the partnership is attributable to the

Separate business or investment income are deduct-

efforts of either spouse (or RDP/California same-sex

ible by the spouse (RDP/California same-sex

spouse), the partnership income is community property. If

spouse) who earns the income.

Publication 555 (March 2012)

Page 5

Irs Publication 555 - Community Property Page 5

Related Articles

Related forms

Related Categories