If you live in or are moving into a community property state, you may be wondering how community property laws will affect your tax bill.
In today’s post, I’ll explain what to look out for and some tips for helping you save tax money in a community property state.
What is “community property”?
“Community property” is the term used for any assets (or debts!) that a married couple acquires during their marriage. This term is based on the concept that both spouses contribute to the marriage whether financially or domestically, and so they should both have equal ownership in assets and liabilities.
In what we call “community property states,” both spouses are considered to equally own everything that is earned or purchased while they are married. Community property can apply to real estate, income, personal property, retirement accounts, and debt. And it doesn’t matter if only one spouse’s name is on a title or deed.
Which states are community property states?
As of 2025, there are 9 states that follow the community property principles and apply them to their state laws:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Additionally, Alaska allows couples to choose if they want to designate certain property as community property through a written agreement.
In states that don’t follow community property laws, the laws of property ownership usually follow the principle of “equitable distribution.” This means that assets and debts acquired during the marriage are divided fairly, but that doesn’t necessarily mean equally or 50/50.
How does community property affect my taxes?
You’ll notice that I only speak in generalizations about this topic, and that’s because even amongst the states with community property laws, how those laws are applied to their residents’ taxes can vary.
Additionally, your income sources, filing status, how your assets and your spouse’s assets are divided, and whether you’re separated or living apart can all play a part in how your taxes will be affected by community property laws.
However, there are some subjects that all spouses in community property states should consider and discuss with a tax professional:
- Federal Income Taxes
- The way you report your income and property–either as separate or community–on your federal income tax return will generally be the same as how you report those items on your state return. In other words, you’ll need to make sure that the way you report assets and debts on your state return matches up with what you report to the IRS.
- Filing Status
- Typically you will pay less in taxes if you are filing jointly rather than filing separately, but not always. You should consider running your return both ways to see which way will save you in taxes.
- Classifying Property
- Property that’s acquired before marriage or through gifts or inheritances may be considered separate property, even in a community property state. Also, even when looking at separate property, if there is income generated from that property–through rental income or capital gains, for example–that income becomes community income. Understanding these distinctions and correctly classifying property and income can be important when completing your taxes.
- You’ll also want to make sure that you have documentation to show why you’ve classified each type of property or income as either separate or community. This applies to things like inheritances, gifts received before or during marriage, IRA contributions and withdrawals, business income, and medical expenses.
- Small Business
- In community property states, if you and your spouse own a business together, you should work with an accountant to decide which business entity you should choose. One option that’s available to spouses in community property states (and not elsewhere) is to form a single-member LLC as a married couple. Since liability and tax implications differ depending on entity type, this is a choice that requires careful consideration.
- Registered Domestic Partnership
- In some community property states, community property laws extend to registered domestic partnerships (RDPs). However, for federal tax purposes, RDPs are not recognized–only same-sex marriages where the couple was married under state law are. Partners in RDPs will file separate federal income tax returns and file as head of household or single and include both separate and community income on those returns.
Community property laws can determine how you and your spouse report and pay taxes for property and income. Whether you’re filing separately, going through a divorce, or running a small business, the rules surrounding community property can make a big impact on your tax bill. For that reason, it’s important to speak to an accountant who can help you understand how these laws impact you and assist you in making the best financial and tax decisions for your family.