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I think it's much clearer to me now than when I made the initial post in this thread.

Peter said:

I'm not sure if your wife's income is community property. I'm pretty sure yours is. This is one of the complications of unusual living arrangements like this. And it is not addressed very well in the tax codes or regulations.

And later Peter added:
Yes, a savings is definitely possible. There are three possibilities.
-Your separate income. Fully taxable to CA.
-Community income. 1/2 taxable to CA.
-Your wife's separate income. Not taxable to CA.

I say:

Here's what I understand so far:
1. My income is "community" property (since it was earned solely in CA). As such, no part of my income can be termed "separate", including gains sourced from my income.

2. My wife's income is NOT community property since it was earned solely by her in a separate state (FL) (Peter is not sure about this but that is not very important for me to be answered right now anyway. I am more interested if ensuring whether my income is community or separate).

3. Income such as Interest on savings account gains, Cap Gains from stock sales on arising out of CA sourced (my income) etc. will be community property, while that earned from non-CA sources will NOT be "community".

4. All income that is deteremined to be "community" will be "1/2 taxable to CA" as Peter mentioned.

Are these inferences accurate? Sorry to be seemingly beating this do death, but I promise I won't drag this much longer :).
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