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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
1. You and your spouse lived apart all year. George Sharon
2. You and your spouse didn't file a joint return for a tax Wages $20,000 $22,000
year beginning or ending in the calendar year. Consulting business 5,000
3. You and/or your spouse had earned income for the Partnership 10,000
calendar year that is community income. Dividends from separate property 1,000 2,000
Interest from community property 500 500
4. You and your spouse haven't transferred, directly or
indirectly, any of the earned income in condition (3) Total $26,500 $34,500
above between yourselves before the end of the year.
Don't take into account transfers satisfying child sup- Under the community property law of their state, all the
port obligations or transfers of very small amounts or income is considered community income. (Some states
value. treat income from separate property as separate in-
come—check your state law.) Sharon didn't take part in
If all these conditions are met, you and your spouse must George's consulting business.
report your community income as discussed next. See Ordinarily, on their separate returns they would each
also Certain community income not treated as community report $30,500, half the total community income of
income by one spouse, earlier. $61,000 ($26,500 + $34,500). But because they meet the
Earned income. Treat earned income that isn't trade four conditions listed earlier under Spouses living apart all
or business or partnership income as the income of the year, they must disregard community property law in re-
spouse who performed the services to earn the income. porting all their income (except the interest income) from
Earned income is wages, salaries, professional fees, and community property. They each report on their returns
other pay for personal services. only their own earnings and other income, and their share
Earned income doesn't include amounts paid by a cor- of the interest income from community property. George
poration that are a distribution of earnings and profits reports $26,500 and Sharon reports $34,500.
rather than a reasonable allowance for personal services
Other separated spouses. If you and your spouse are
rendered.
separated but don't meet the four conditions discussed
Trade or business income. Treat income and related earlier under Spouses living apart all year, you must treat
deductions from a trade or business that isn't a partner- your income according to the laws of your state. In some
ship as those of the spouse carrying on the trade or busi- states, income earned after separation but before a de-
ness. cree of divorce continues to be community income. In
other states, it is separate income.
Partnership income or loss. Treat income or loss
from a trade or business carried on by a partnership as
the income or loss of the spouse who is the partner.
End of the Community
Separate property income. Treat income from the
separate property of one spouse as the income of that The marital community may end in several ways. When
spouse. the marital community ends, the community assets
Social security benefits. Treat social security and (money and property) are divided between the spouses.
equivalent railroad retirement benefits as the income of Similarly, a registered domestic partnership may end in
the spouse who receives the benefits. several ways and the community assets must be divided
between the registered domestic partners.
Other income. Treat all other community income,
such as dividends, interest, rents, royalties, or gains, as Death of spouse. If you own community property and
provided under your state's community property law. your spouse dies, the total fair market value (FMV) of the
community property, including the part that belongs to
Example. George and Sharon were married through- you, generally becomes the basis of the entire property.
out the year but didn't live together at any time during the For this rule to apply, at least half the value of the com-
year. Both domiciles were in a community property state. munity property interest must be includible in your spou-
They didn't file a joint return or transfer any of their earned se's gross estate, whether or not the estate must file a re-
income between themselves. During the year, their in- turn (this rule doesn't apply to registered domestic
comes were as follows: partners).
Example. Bob and Ann owned community property
that had a basis of $80,000. When Bob died, his and
Ann's community property had an FMV of $100,000.
One-half of the FMV of their community interest was in-
cludible in Bob's estate. The basis of Ann's half of the
property is $50,000 after Bob died (half of the $100,000
FMV). The basis of the other half to Bob's heirs is also
$50,000.
Publication 555 (March 2020) Page 9
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