Question

Simba and Zola are married but file separate returns. Simba received $80,000 of salary and $1,200 of taxable dividends on stock he purchased in his name and paid from the salary that he earned since the marriage. Zola collected $900 in taxable interest on certificate of deposit that she inherited from her aunt.

Compute Zola’s gross income under two assumptions as to the state of residency of the couple.

If an amount is zero, enter "$0".

New Mexico (Community Property State) South Carolina (Common Law State) Dividends $ $ Interest $ $ Salary $ $

Answer 1

Under community property system, all the property is deemed to be community property except when

• A property is acquired or held by the spouse before marriage or

• Property is received as gift or inheritance after marriage.

In this case, each spouse is required to pay tax on one-half of income arising from community property and full tax on income from separately held property. Taxable gross income of spouse under community property system is calculated as follows

	New Mexico	Community property state
Dividends	$600	$1,200 × 50%       (Community property)
Interest income	$900	Inherited property
Salary	$40,000	$80,000 × 50%   (Community property)
Total gross income	$41,500

Under common law system, a spouse is required to pay tax on his or her actual earnings and property income only.

	South Caroline	Common law state
Dividends	$0
Interest income	$900
Salary	$0
Total gross income	$900