Community Property-The Rules and Their Impact on Income Tax and Estate Tax Return Reporting

It is important for every tax practitioner to understand State Property laws to properly advise clients on tax planning, estate planning and tax controversy matters. Federal tax law has always deferred to State laws to determine the character and nature of property. This article will focus on California Community Property Laws, but it should be noted that a total of nine States are community property states. California law defines community property as any asset acquired or income earned by a person while married or in a domestic partnership that is not a gift or inheritance. There is a presumption in California that property acquired during marriage is community property. Separate property is defined as anything acquired by a spouse before the marriage; during the marriage by gift, devise or bequest, and after the parties separate.