Community Property States Can Hurt You
It is great for AGI overall limit, not so great for the more than 75% test
We got the following question from a reader:
“Good morning Paul. I subscribe to your farm cpa report and read the article this morning How the 2008 Farm Bill Helps Joint Filers. We are in Texas and the FSA office here has told me that because we are a community property state that wages must be treated as 50% spouse 50% husband regardless of whom earned it. I just wondered if you agreed with this statement.”
This is where we have good news and bad news. For the regular $900,000 AGI test, community property states effectively create a $1.8 million AGI limit since everything is split 50/50 (there can be a small difference on the SE tax deduction, etc.).
However, when it comes to the more than 75% test, electing to pretend that you filed married filing separate will not help you since all of your income is deemed to be earned 50% by one spouse and 50% by the other spouse.
Therefore, if you don’t meet it on a married filing joint basis, you will not meet it on an MFS basis either.