Lee and Pat are married taxpayers living in Louisiana.Lee earns wages of $40,000 and has $5,000 of dividend income from separate property.Lee and Pat have interest income from community property of $10,000.If Lee and Pat file separate income tax returns, what amount of income must be included on Lee's separate tax return?

Question

Quizplus · Accepted Answer

In Louisiana, community property laws apply which means that the interest income of $10,000 earned from community property is split equally between Lee and Pat. Therefore, Lee's share of the community property is $5,000 ($10,000/2).

Thus, the total income that Lee must report is $40,000 (wages) + $5,000 (dividend income from separate property) + $5,000 (Lee's share of community property interest income) = $50,000.

However, if Lee and Pat file separate tax returns, Lee only needs to report his own separate income which is $40,000 (wages) + $5,000 (dividend income from separate property) = $45,000.

Therefore, the amount of income that must be included on Lee's separate tax return is $27,500 (Lee's income plus half of community income) which is option C.

Lee and Pat Are Married Taxpayers Living in Louisiana