Question

Janice and Jarrod are married and live in a community property state. Janice is NOT employed outside the home, and Jarrod earns a salary of $98,000. During the year, they earned $2,000 on investments that are owned jointly. The investments were made after they were married, with money earned by Jarrod. How is the gross income treated for federal income tax purposes?

a. Jarrod is deemed to have earned $99,000 and Janice is deemed to have earned $1,000
b. Jarrod is deemd to have earned $98,000 and Janice is deemed to have earned $2,000
c. Jarrod is deemd to have earned $100,000 and Janice has no income
d. Jarrod is deemd to have earned $50,000 and Janice is deemed to have earned $50,000

Answer 1

In a community property state, Jarrod and Janice would each be deemed to have earned $50,000 of the total $100,000 gross income for federal income tax purposes.

Step-by-step explanation:

In a community property state, income earned during marriage is typically considered to be owned equally by both spouses, regardless of who earned it. Since Jarrod's salary of $98,000 and the jointly owned investment income of $2,000 were both earned during the marriage, the total gross income of $100,000 would be split evenly between Janice and Jarrod for federal income tax purposes. So, Jarrod is deemed to have earned $50,000 and Janice is deemed to have earned $50,000.