Community Property Rules for Married Filing Separately (+ Form 8958 Guide)

You typically report one-half of all community income and all of your separate income when filing separately in a community property state. These rules come directly from IRS Pub. 555, which governs how community income and property must be split for federal tax purposes.

What Counts as a Community Property State?

If you file as community property married filing separately, you enter a very specific tax system where state law determines who owns income and property. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin follow mandatory community property rules. Alaska, Florida, Kentucky, South Dakota, and Tennessee allow couples to opt into a community property arrangement under state law.

In a community property state, marriage is treated like an economic partnership. That usually means:

• Income earned during marriage is community income.
• Assets acquired during marriage are community assets.
• Funds deposited during marriage are community funds.

This matters because the IRS follows state property law when deciding whether income or assets are community or separate for federal tax purposes. Filing separately in one of these states means you cannot simply “report what’s yours.” State law may say half of it belongs to your spouse.

Source: IRS Pub. 555, Community Property States

Key Definitions

• Community property: Property acquired during marriage while domiciled in a community property state.
• Community income: Income earned during the marriage, such as wages, interest, dividends, rental income, and business profits.
• Separate property: Property owned before marriage or acquired during marriage using separate funds.
• Separate income: Income from separate property or income that state law treats as separate.

IRS Pub. 555 requires registered domestic partners in California, Washington, and Nevada to follow community income allocation rules for federal tax purposes, even though they cannot use the Married Filing Jointly or Separately statuses.

Source: IRS Pub. 555, Register Domestic Partnerships

How Community Property Rules Change Your MFS Tax Return

When you file married filing separately, the usual federal rule is simple: report only your own income.

According to IRS Publication 555 and Form 8958, if you file separate returns in a community property state, you must:

Report one-half of all community income plus all of your separate income.

This rule applies even if:

• Your spouse never received the income
• Your spouse’s name is on the paycheck
• The funds went into an account that the other spouse controls

What gets split 50/50?

• W-2 wages earned during marriage
• Interest and dividends from community property accounts
• Business income from a business operated during marriage
• Rental income from community property
• Property bought with community funds

What does not get split 50/50?

• Separate property income that stays separate under state law
• Income earned after separation is separate only if the state’s laws define post-separation earnings as separate property (IRS Pub. 555, Separate Income)
• Property owned separately before marriage, and income that retains a separate character
• Income from a valid prenuptial agreement that reclassifies assets

However, income received separately may still be considered community income if state law says it was earned through services performed during marriage.

Remember: classification depends on your state’s specific law, not on who earned or controlled the money.

Community Property vs Common-Law States (Comparison Table)

Community property states and noncommunity property states handle MFS income allocation very differently.

Comparison Table

This table helps you spot the biggest difference: in a community property state, income earned is shared even when returns are filed separately.

These differences are why taxpayers who file Married Filing Separately in a community property state must complete Form 8958 to document the allocations.

Understanding Separate Property and Separate Income

Separate property carries over into the marriage and typically includes:

• Assets owned before marriage
• Inheritances
• Gifts to one spouse
• Property bought with separate funds
• Certain personal injury awards

However, separate property can produce:

• Separate income (e.g., interest on a premarital savings account)
• Or community income if state law says income derived from separate property is considered community income

For example:

Real Examples: How to Split Income and Deductions Under MFS

Below are practical examples explaining how to split income MFS using community rules.

Example 1: W-2 Income

Spouse A earns W-2 wages: $60,000

Total community wages: $80,000

Spouse A also reports any separate income.

Example 2: Interest Income

A joint savings account earns $1,200 in interest.

In a community property state, the interest is community income unless the funds in the account are partly separate.

Allocation: each spouse reports $600.

Example 3: Deduction Allocation

Spouse A pays $8,000 in medical bills. Community income is split equally.

Under MFS:

• Either both spouses itemize, or both use the standard deduction
• If itemizing, the medical deduction applies against each spouse’s share of AGI
• If community property, medical expenses may be treated as paid from community funds

IRS Pub. 555 provides worksheets to assist with community vs separate income classification. Many states also publish worksheets that may be required.

If you want a deeper breakdown of how itemized deductions work when filing separately, see our guide on how itemized deductions work under Married Filing Separately.

Form 8958 Guide: Who Must File and How to Fill It Out

Form 8958, Allocation of Tax Amounts Between Certain Individuals, is the IRS form used to split:

• Income
• Deductions
• Credits
• Withholding
• Taxes paid

If you file married filing separately in a community property state, you must attach Form 8958 to your separate return.

Who must file Form 8958?

• Married couples filing separately in a community property state
• Registered domestic partners in California, Washington, or Nevada
• Certain individuals who must split income for federal tax purposes

How Form 8958 Works

The form walks you through:

1. List community income (wages, interest, business income, etc.)
2. List separate income
3. Allocate one-half of the community income to each spouse
4. Assign separate income to the spouse who earned it
5. Enter deductions and determine whether separate or community
6. Transfer totals to each spouse’s federal tax return

IRS Form 8958

Form 8958 is only used to allocate income, deductions, and credits between spouses or partners in community property situations. It does not determine tax owed.

Special Rules for Registered Domestic Partners

In California, Washington, and Nevada:

• RDPs must split community income for state tax purposes
• RDPs are not treated as married for federal tax purposes
• But the IRS still requires community income allocation using Form 8958

RDPs do not qualify for the Married Filing Jointly status, but community income rules still apply.

Example:

State-by-State Nuances and Special Community Property Rules

Community property rules vary. A few highlights:

New Mexico

Special rules apply when spouses live apart or operate separate businesses.

Property bought with separate funds

If one spouse buys property using only separate funds, the property is usually owned separately, even in a community property state.

If you’re figuring out how to split property tax deductions, see our guide on who claims property taxes when filing separately.

Domicile governs the rules

Community property applies based on where you are legally domiciled, not where you work.

Income from services performed

Money earned from services performed while married and domiciled in a CP state is usually community income, even if received separately.

Prenuptial Agreements

A valid prenuptial agreement can override state classification and protect separate property from becoming community property, provided it complies with state law.

If One Spouse Dies

Community property rules continue to affect how basis step-up and ownership work for the surviving spouse.

If you’re also splitting mortgage interest under MFS, community property rules affect that, too. See our guide on who claims mortgage interest when filing separately.

Planning Tips for Couples Filing Separately in a Community Property State

Filing separately in a community property state is not just about “split everything in half.” It can significantly change your tax rates, credits, and overall tax amounts.

Tip 1: Understand credit limitations

Some credits are not available to MFS filers, including the earned income credit, American Opportunity Credit (unless conditions are met), and the dependent care credit.

This may outweigh any benefits of filing separately.

Tip 2: Track your community funds and separate funds

Good records make Form 8958 easier to complete and help protect the separate property status.

Tip 3: Compare filing jointly vs separately

Because income is split, filing separately can increase your total household tax or move you into a higher bracket.

Tip 4: Student loans may be affected

In community property states, MFS filers may report less income on their IDR plans, but the allocations must match those on Form 8958.

Tip 5: Double-check itemized deductions

Remember the rule: either both spouses itemize, or both take the standard deduction.

For a full overview of MFS rules, see the Married Filing Separately page.

Conclusion and Next Steps

Navigating the community property rules for married filing separately can feel complicated, but understanding how state law defines community income, separate property, and community assets helps you file accurately and avoid IRS issues. Form 8958 is the tool you use to ensure each spouse reports the correct amounts.

Ready to file your taxes? Start your tax return today.