Ok. So basically our combined income will be considered "community", correct?

I don't know. That's the issue here, and probably one for the lawyers.

With one spouse in a community property state and one not, I don't know how to determine community property income.

Now, I am a little unclear about your above statement "If it's community income, it goes 1/2 to each spouse.". Does that mean if I have a cap gain of say $x for the year, I show half of it (my portion) on our CA return, i.e. $x/2? Or do I show all of it?

Well, all of it will go in the worldwide income column, and 1/2 will go in the CA source income column. From a practical standpoint, 1/2 if it is taxable to CA.


I just want to get to the moral of the whole story here. Can I save anything at all or nothing?

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.

--Peter