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Claiming income, exemptions, and deductions

Same-sex married couples (SSMCs) have special considerations when claiming income, exemptions, or deductions:


Here are some important things to know about claiming income, exemptions, or deductions:

Will community property be applied to the earned income of a spouse in a same-sex marriage for California tax purposes?

Yes, pursuant to California family law, community property applies to the earned income of a spouse domiciled in California, including a spouse in a same-sex marriage recognized as a valid marriage in California, pursuant to the California Supreme Court's holding in In re Marriage Cases.

How should SSMCs report on their married filing separate returns items such as community income, community deductions, and separate expenses paid with community property funds?

SSMCs should use the same community property rules that apply to all spouses filing a married filing separately California return.

How do SSMCs who file California joint returns combine their incomes, deductions, credits, etc., from their separate federal returns to complete their California returns?

SSMCs will combine income and deductions from their separate federal returns to complete their California tax return and compute their tax. Detailed instructions for SSMCs will be available on our website in December 2008.

How does the Supreme Court's decision in In re Marriage Cases impact the tax effect of sales of CA real property?

SSMCs who sell or transfer jointly owned California real property that will be reported on their 2008 or later tax return are spouses for purposes of completing California Form 593, Real Estate Withholding Tax Statement. Therefore, real estate escrow persons may complete and provide SSMCs with a combined Form 593 listing both spouses for the completed real estate transaction.

Can a spouse in a same-sex marriage who files a California married filing jointly return exclude up to $500,000 of capital gain on the sale of a principal residence?

Yes, if they meet the capital gain exclusion rules that apply to a married individual filing a joint return. For more information, see federal Publication 523, Selling Your Home.

If a same-sex married couple obtains a divorce and a California Family Law court awards spousal support (alimony), what is the tax treatment of these payments?

If the payment satisfies the requirements under tax law for alimony, it would be deducted by the payor and included by the payee. However, federal treatment of these payments is uncertain.

If a same-sex married couple obtains a divorce and a California Family Law court orders a division of mutually acquired property (acquired with separate and/or community funds), what are the tax considerations for a gift, sale, part gift, or part sale? Could anything qualify for IRC Section 1041 or R&TC Section 18031 treatment?

Under California tax law, it would be considered a property transfer by a married individual. Federal treatment of these transactions is uncertain.

Do SSMCs combine the number of exemptions they claim on their separate federal returns to arrive at the total number of exemptions they can claim on their California return?

Yes, all personal, blind, senior, and dependent exemptions should be combined on the MFJ California return. For a detailed explanation of exemptions, see Form 540/540A instructions.

How do SSMCs who file a California joint return treat itemized deductions that are subject to AGI limitations?

SSMCs will be required to recompute their federal AGIs as if they were treated as spouses for federal purposes. In doing so, they will have to use the same filing status that they used to file their California return to determine limitations of credits and deductions that apply to their California return.

Do SSMCs combine their federal itemized deductions that are not subject to limitations to arrive at their California itemized deductions before California adjustments?

Yes, to arrive at California itemized deductions, SSMCs filing a joint return would combine their federal itemized deductions that are not subject to limitations.

How have the mortgage interest rules changed for SSMCs?

The limitations applicable to the deductibility of mortgage interest for married individuals may limit your mortgage interest deduction on your California return. For more information about those limits, see federal Publication 936, Home Mortgage Interest Deduction.

What California medical and health expense benefits are available for a same-sex married couple?

The benefits spouses enjoy include:

  • An exclusion from gross income for employer-provided accident and health insurance.
  • An exclusion from gross income for medical expense reimbursement if the expense was not previously deducted.
  • Medical expenses deductible as an itemized deduction.
  • Long-term health care insurance deductible as a medical expense.
  • A deduction by self-employed individuals for health insurance costs. The deduction may not exceed the net earnings from the trade or business in which the insurance plan is established.

Federal tax law does not allow the same treatment of these benefits for same-sex married couples. These deductions are taken as an adjustment on the Schedule CA (540) or Schedule CA (540NR).

California Adjustments

Type of Benefit Federal Treatment California Treatment Adjustment Code Section
Accidental and Health insurance exclusion of incomestrong Federal law does not allow an exclusion for accidental and health insurance paid by the employer for the spouse of a same-sex marriage or their spouse's dependents. California allows an exclusion from gross income for employer-provided accident and health insurance for a spouse of a same-sex marriage and their spouse's dependents if not previously deducted. Enter the adjustment on Schedule CA (540 or 540NR). Internal Revenue Code 106(a)
Medical expense reimbursement as an exclusion from income Federal law does not allow an exclusion for medical expense reimbursement paid by the employer for the spouse of a same-sex marriage or their spouse's dependents. California allows an exclusion from gross income for employer-provided medical expense reimbursement for a spouse of a same-sex marriage and their spouse's dependents if expenses were not previously deducted. Enter adjustment on Schedule CA (540 or 540NR). Internal Revenue Code 105(b)
Medical expenses Federal law does not allow a deduction for medical expenses incurred for the spouse of a same-sex marriage or their spouse's dependents. California allows a deduction for medical expenses for a spouse of a same-sex marriage and their spouse's dependents as an itemized deduction that exceeds 7.5% of Federal AGI. Enter adjustment on Schedule CA (540 or 540NR), Adjustments to Federal Itemized Deductions, under the line for Other adjustments. Enter the allowed amount as a positive number. Internal Revenue Code 213(a)
Qualified Long-term health care insurance deductible as a medical expense Federal law does not allow a deduction for long-term health care insurance expenses paid for a spouse of a same-sex marriage or their spouse's dependents. California allows a deduction for medical expenses for the spouse of a same-sex marriage and their spouse's dependents as an itemized deduction that exceeds 7.5% of Federal AGI. Refer to Federal Publication 502, Medical and Dental Expenses, for additional limits on deductible long-term care premiums. Enter adjustment on Schedule CA (540 or 540NR), Adjustments to Federal Itemized Deductions, under the line for Other adjustments. Enter the allowed amount as a positive number. Internal Revenue Code 213(a)
Self-employed individual health insurance deduction Federal law does not allow a deduction for self-employed health insurance expenses incurred for a spouse of a same-sex marriage or their spouse's dependents. Self-employed individuals in a same-sex marriage may claim a deduction for health insurance costs paid for themselves, their spouses, and their spouse's dependents. Enter adjustment on Schedule CA, column C, under the line for Self-employed health insurance deduction, the amount paid for health insurance coverage (established under your business) for your spouse and your spouse's dependents. Your total California deduction cannot exceed the limitations explained in the federal instructions. Do not include health insurance costs for any month you were eligible to participate in any subsidized health plan maintained by you or your spouse's employer.
Enter adjustment on Schedule CA, column B, on the line for self-employed health insurance deduction, the amount of health insurance cost included in column A, for any month you were eligible to participate in any subsidized health plan maintained by your spouse's employer.
Internal Revenue Code 162(l)