Texas does not have a state income tax which simplifies the interpretation of Texas community property laws. Income from most separate property is community income during the community period. Community property is property acquired from the beginning date of marriage until the ending date of marriage. Any property acquired outside those dates may be separate property, but for income tax purposes, read the federal tax laws in conjunction with the Texas statutes.
Separate Property Under Texas Statutes
Separate property includes property owned or claimed by the spouse before marriage, property acquired by the spouse during marriage as a gift or inheritance, and personal injury recovery for personal injuries sustained by the spouse during marriage.
The “inception of title” rule relates to separate or community property. The date of acquisition determines whether the item is separate or community property. If the title was transferred prior to marriage, it is separate property; transfers during marriage are community property.
Community Property in Texas
Under Section 3.002 of the Texas Family Code, any property that is not separate property is community property, and under 3.003, there is a presumption of community property for any property possessed during, or upon dissolution of, the marriage. Clear and convincing evidence is the standard of proof. Income from separate property generated during the marriage is community property for income tax purposes. Recovery for loss of earning capacity during marriage is community property in Texas.
3.007 of the Texas Family Code governs employee benefits of a spouse. If the benefit requires work after marriage to be effective, there are computations for both separate property and community property interest in the employee benefits.
Texas Family Code 3.008 controls insurance proceeds. Disability payments intended to replace earnings during the community are community property.
Section 4.202 of the Family Code allows spouses to convert separate property to community property at any time by agreement. Constructive notice to a purchaser or creditor requires acknowledgment and recording with the deed records.
Texas law allows for the consideration of taxes in dissolution of the community property estate by divorce under section 7.008.
Income Taxes Under Federal Law for Texas Domiciliaries
Publication 555 from the Internal Revenue Service works in conjunction with Texas law if Texas is your permanent legal home. If you file a federal tax return separate from your spouse, you must include half the community income and all your separate income. Remember that income from separate property during the marriage is community property in Texas, and for federal income taxes. Review the income, deductions and credits section of Publication 555.