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How do we separate community property for separate tax returns?

Texas couples that have filed for divorce may consider filing separate tax returns. However, they may have many questions about the rules related to such filings. Texas is a community property state and has particular laws pertaining to property division and tax returns. The tax for married couples that file jointly may be lower, but some couples may benefit from filing separately.

The first thing couples need to determine is their community income and separate income. Community income is income derived from community property. Community property is all property acquired during the marriage -- with some exceptions such as inheritances or gifts. When filing separate tax returns, 50 percent of the income from community property real estate should be filed by each spouse. If you are entitled to the income from an item that your spouse is unaware of at the time of filing tax returns, you may not include that income in your gross community income, and you will be responsible for filing the full amount.

Business and investment expenses to generate income from community property have to be divided, and each spouse will be entitled to claim deductions for his or her share. On the other hand, deductions for expenses to earn income on separate property will be recorded on that spouse's tax return. Personal expenses paid from community funds will be split to benefit both spouses; however, if personal expenses are paid from separate funds, that spouse may list the total expense.

These are only the basics, and the process could be quite complicated. If you feel overwhelmed by the prospect of determining community property and separate property, or if you have unanswered questions about property division, you may benefit from visiting our property division website. The advice and guidance of a Texas divorce attorney may be invaluable.

Source: montereyherald.com, "Tax Tips: Filing separately in a community property state", Barry Dolowich, Oct. 21, 2014

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