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Assuming that we can nail it down as separate property, it's easy. If it's the CA spouse's gain, it is taxable to CA. If it's the FL spouse's gain, its not taxable to CA.

I was hoping for that answer, which sounds very reasonable.

For community property, I'd take a different tack. I'd report 1/2 of the gain in each state - CA and FL. (Of course, reporting 1/2 of it in FL is rather moot since they don't have an income tax.)


You will need to use the CA non- and part-year resident form, 540 NR. As you work through it, you'll find that you need to do two things. First, you need to report ALL of your joint worldwide income using CA rules. You might need to adjust some items to do that - like the state tax refund isn't taxable, nor are your state income taxes deductable. Once you do that, you get to your CA law AGI and itemized deductions.

I am assuming Turbotax does that all very efficiently.

Then you go back and identify all of your income items as either CA source or non-CA source. Here's where things get funny. Remember that we've got to deal with community property issues. And since you're married your wages are community property. 1/2 of your wages are CA income and 1/2 are FL. Likewise with your spouse. 1/2 of her wages are FL income and 1/2 are CA. (I did mention this was fun, didn't I?)

Then you get to play the same game with all of your other income sources: interest, dividends, capital gains, and so on. If they're community property, it's 1/2 CA and 1/2 FL. If they're separate property, they go to the state where the spouse is resident.

Ok. Makes sense, but that brings to me to my earlier questions
"Does it just boil down to mere technicality of what kind of account it is? If so, I might as well have carried out all transactions from my wife's individual account and we would have been able to save all the state income tax on those gains (FL does not have any state income tax), correct?"
I mean, if I make all transactions from my wife's individual account for year 2006, all the gains that arise of those would NOT be taxable in CA.
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