Texas Community Property Accounting for Couples

Texas is a community property state, which means how you track income and expenses during marriage has real tax and financial consequences. This guide explains how to separate community items from separate items in day to day bookkeeping so you and your spouse can stay organized, pay the right estimated taxes, and file accurately with your CPA. You will find plain language summaries of Texas law, how the IRS looks at community property for federal tax, practical systems for tracking side hustles and rentals, and what to send your CPA at year end. While this article is written for couples living in Texas, the references include direct links to the Texas Family Code and IRS guidance so you can check the rules that apply to your situation.

Texas law in plain language

Texas Family Code Chapter 3 is the starting point for what counts as separate property and what counts as community property. Separate property is defined by statute. Texas defines separate property as property owned before marriage, property acquired by gift or inheritance during marriage, and recoveries for personal injuries except lost earning capacity. See Texas Family Code section 3.001 at the official statutes site at statutes.capitol.texas.gov, and a readable summary at texas.public.law.

Community property is also defined by statute. Community property in Texas is everything acquired during marriage that is not separate property. Property possessed during marriage is presumed community unless rebutted by clear and convincing evidence. See Texas Family Code sections 3.002 and 3.003 at the official site at statutes.capitol.texas.gov, and a plain language summary at texas.public.law.

Texas follows the Spanish rule concept for income from separate property. In a Spanish rule state, income produced by separate property is generally treated as community income. That means interest on a separate savings account, rent on a separate rental house, and ordinary income that flows from separate assets often lands on the community side, while the underlying asset may remain separate. There are exceptions under Texas law, such as certain mineral interests and royalty payments that are treated as a return of corpus. The IRS Internal Revenue Manual discusses this framework in its community property guidance at irs.gov. If you hold assets where income treatment is unclear, speak with a Texas CPA and, where needed, a Texas attorney, since classification can turn on specific facts and case law.

How federal tax splits income

The IRS respects state community property rules when married couples are domiciled in a community property state like Texas. For federal tax purposes, spouses domiciled in a community property state who file separate returns generally must report one half of community income and one hundred percent of their separate income. When you file Married Filing Separately in a community property state, you generally attach Form 8958 to show how income, deductions, and credits are allocated between spouses. See IRS Publication 555 Community Property at irs.gov and About Form 8958 at irs.gov.

Even if you file a joint return, tracking who owns what and what is community helps you keep clean records, particularly if you ever switch to separate returns, move between states, have a marital agreement, or need to trace funds for another purpose such as a refinance.

Federal law also treats some items differently than ordinary community income. Self employment tax, certain retirement distributions, and some credits can have special handling. The IRS explains these exceptions in the Internal Revenue Manual community property section at irs.gov. The key point is that while you may split community income in half on separate returns, you may not split certain taxes or credits the same way. Good tracking makes these items simpler to report.

Quick guide to separate vs community

The table below summarizes common items. This is a guide, not legal advice. Use it with the citations linked in this article and talk with your CPA about any edge cases.

Item	Typical treatment in Texas	Notes and citations
Property owned before marriage	Separate property	Texas Family Code section 3.001 link
Gifts to one spouse during marriage	Separate property	Keep donor letter or documentation. Texas Family Code section 3.001
Inheritance received by one spouse	Separate property	Maintain probate or trust records. Texas Family Code section 3.001
Wages earned during marriage	Community income	Texas Family Code sections 3.002 and 3.003
Interest on separate bank accounts	Often community income	Spanish rule concept. See IRS IRM community property link
Rent from separate real estate	Often community income	Spanish rule concept. Confirm facts with a CPA or attorney
Dividends on separate stock	Often community income	Spanish rule concept. Confirm any exceptions with your advisor
Mineral royalties and bonuses	May be separate income	Texas has special rules for mineral interests. Get advice
Personal injury damages	Generally separate property	Except for lost earning capacity. Texas Family Code section 3.001
Business started before marriage	Separate property	Growth during marriage can raise reimbursement or allocation questions
Business started during marriage	Community property and income	Track owner draws, capital, and payroll carefully

A simple tracking system that works

A little structure beats sorting a box of statements every March. The goal is to label each material item as community or separate at the time of the transaction, and to preserve proof that backs up the label. Keep it simple enough that you will actually use it.

Use one shared spreadsheet or your accounting software with tags for community and separate. Create a dedicated separate account for each spouse for separate funds, and a joint account for community funds. When you get a gift or inheritance, deposit it in that spouses separate account. When you earn wages or side hustle income, route it to a joint or business account and tag it as community income unless you have a specific reason and evidence for a different treatment under Texas law.

Here is an easy column setup for a spreadsheet. You can also mirror these as custom fields or classes in QuickBooks, Xero, or another system.

Date, Payor or Client, Income Type, Gross Amount, Business Expenses, Net Income, Source community or separate, Evidence such as bank deposit or deed, Notes.

Example lines

03 slash 20 slash 2025, Etsy Sales, Side hustle digital art, 1,200, 120 fees, 1,080, Community, Stripe deposit 03 slash 20 slash 2025, business began during marriage

05 slash 10 slash 2025, John Smith Trust, Inheritance distribution, 25,000, none, 25,000, Separate, copy of trust letter and deposit slip, deposited to spouses separate account

08 slash 02 slash 2025, ACME Rentals, Rent, 2,100, 400 repairs, 1,700, Community income on separate property, lease and bank deposit, rents from separate house in Texas

Store documentation that proves the separate label. For gifts and inheritances, keep donor letters, probate or trust paperwork, and the deposit slip. For separate property purchased before marriage, keep the closing statement and the funding records that show where the money came from. That way you can rebut the community presumption with clear and convincing evidence if needed.

Side hustles and sole proprietors

Side hustle activity is very common for Texas couples, and community property rules apply here too. Income earned during marriage is typically community income. If both spouses participate in the work, you still generally treat the earnings as community income. The business may be a sole proprietorship on Schedule C or an LLC taxed as a disregarded entity. The label does not change the core community treatment for income earned during marriage.

What to track for side hustles

Keep a separate business bank account. Use it for all deposits and expenses. Keep invoices, sales reports, and fee statements. Tag all deposits as community income unless you have a defensible reason to apply a different rule based on separate property status and the Spanish rule framework. Track equipment and software purchases and note whether community funds or separate funds paid for them. If separate funds paid for startup assets, note that in your records. If one spouse owned a business before marriage, that ownership interest is separate property, but a share of the growth during marriage may be subject to a reimbursement claim or another allocation method, especially if community funds or time materially contributed to growth. The IRS IRM discusses methods used by courts such as Pereira and Van Camp in community property settings. For background on those approaches, see this overview article at whiteoaklegacypartners.com and discuss the facts with your CPA and your attorney.

Self employment tax requires special attention. While income may be split under community rules in some cases, self employment tax is handled differently at the federal level in several scenarios. The Internal Revenue Manual lists items that are not split the same way as ordinary community income. Review the IRS guidance at irs.gov and work with your CPA so you apply the right treatment when filing.

Rental property and passive income

Texas couples often own rentals or receive income from pass through investments. Classifying the property and the income stream correctly protects both spouses and keeps your tax filings consistent with Texas law.

Separate property rental house. If one spouse bought a house before marriage with separate funds and then rents it out during marriage, the property itself is separate. Under the Spanish rule framework, rent earned during marriage is generally community income. Track rent deposits, expenses, and repairs in a way that clearly ties to that property. Note whether community funds or separate funds are paying for capital improvements or large repairs, since reimbursement claims may arise in a later legal context.

Property acquired during marriage. A rental purchased during marriage is presumed community. If you claim it is separate because it was bought entirely with separate money, you need evidence that traces the funds from separate accounts to the closing. Store the closing disclosure, wire confirmations, and bank statements in your records.

Royalties and mineral interests. Texas has detailed law on oil and gas interests. It is common for mineral royalties and bonuses tied to a separate mineral estate to be treated as separate income because they are viewed as a return of corpus. Do not assume every royalty is community. Work with a professional who knows mineral law and can read the title documents for your interest. The general Spanish rule concept in the IRS materials is a starting point, not the final word for mineral income in Texas.

Partnership K 1s and S corporation K 1s. If one spouse owns a pass through interest, figure out whether the interest is separate or community and then apply the state law income rule to the items shown on the K 1. Many ordinary business items distributed in cash will be community income if earned during marriage under the Spanish rule framework, but exceptions and special allocations exist. Keep ownership records and capital account activity available for your CPA.

Gifts and inheritances

Gifts and inheritances to one spouse are separate property under Texas Family Code section 3.001. That clear rule can be lost in practice if you mix the funds with community cash frequently and then cannot prove what happened. Keep the separate property in a separate account titled to that spouse. Keep the paperwork that proves the gift or inheritance. When you need to spend separate money on a major purchase, transfer the exact amount from the separate account to the closing or to the merchant. If a transfer lands in a joint account, move the funds to the destination as soon as possible and keep a short note explaining the movement and the purpose.

If a gift of property produces income during marriage, income is usually community under the Spanish rule concept, except where a specific Texas law creates an exception such as certain mineral proceeds. For example, interest on a separately inherited certificate of deposit is likely community income, while the certificate itself stays separate. That is why you should label both the principal and the income in your tracking system so the flow is easy to prove later. Keep statements that show principal versus income and where deposits went.

Commingling and tracing

Texas presumes that property in a spouses possession during marriage is community. To overcome that presumption for a separate item, you need clear and convincing evidence. That is much harder if you repeatedly mix separate and community money in the same account and spend from it often. The cleaner approach is to hold separate funds in their own account and to pay separate expenses from that account.

When commingling has already happened, tracing can still work, but it takes time. You or your CPA will assemble bank records to show the path of separate money to the current asset or account. The longer the period and the more transactions in the account, the harder the work. A clean spreadsheet that tracks each deposit and withdrawal, labeled as separate or community, will save you hours at tax time and if you ever face a legal dispute. If you know you will receive a large separate inheritance or gift soon, open a separate account in advance to receive the funds and avoid commingling from the start.

Estimated taxes for Texas couples

Couples without state income tax often lean on estimated payments to avoid underpayment penalties. In community property settings, who made the payment and whether you file jointly or separately matters for how the credit is handled on your federal return.

General rule for separate filers. If you and your spouse file Married Filing Separately, the person who made an estimated tax payment is credited with that payment. If you cannot agree on how to share jointly paid estimated payments that matter to separate returns, IRS guidance uses a pro rata formula tied to each spouses tax liability. See IRS Publication 555 and IRS Publication 505 at irs.gov and irs.gov for how the IRS handles these credits in community property states.

Form 8958. When you file Married Filing Separately while domiciled in Texas, you generally attach Form 8958 to show how you split community income and deductions and how you handle credits. The form helps the IRS see that both separate and community rules have been applied correctly. The IRS page for the form is at irs.gov.

Self employment estimated payments. If one spouse has a side hustle and pays estimated taxes from that spouses account, those payments are credited to that spouse under federal rules for separate filers, even if some of the income is community income for reporting purposes. The IRS explains these distinctions and related exceptions in the Internal Revenue Manual community property materials at irs.gov.

Practical steps. Keep a simple log for estimated payments by spouse. Record the date, amount, confirmation number, and the bank account used. If you want to split payments in a certain way, plan that in advance and follow through with separate payments from the appropriate spouse or account. Your tracking log will match the IRS account transcripts and support a smooth filing season.

Year round workflow for couples

Running a system you actually use is better than building a perfect system that sits on the shelf. Pick a rhythm that fits your schedule and build a short checklist for each month and each quarter.

Monthly rhythm

Download bank and credit card statements. Categorize income and expenses. Tag each deposit as community or separate. Save the statements in a shared folder with a clear naming convention such as 2025 03 Bank XYZ joints or 2025 03 Bank ABC spouse name separate. Reconcile your business accounts. Clip proof of any separate item to a short note explaining why it is separate. For example, save the gift letter and a copy of the deposit slip with a one sentence note that states Gift to Spouse A from Parent on date for dollar amount.

Quarterly rhythm

Review side hustle profit year to date. Set aside cash for estimated taxes. If needed, make payments using the IRS Direct Pay system and log who sent the money. Check rental properties for any large repairs or capital projects and keep invoices in the property file. If anything changed status, such as a separate account that began receiving community deposits, fix that flow before the next quarter begins.

Year end rhythm

Export a year to date spreadsheet that summarizes community and separate items by category. For each separate item, save the supporting document in the same folder. Make a short summary of domicile for the year. If you moved in or out of Texas during the year, write down where you lived and for what dates. Community property rules depend on domicile, and your CPA will need that timeline to apply the right allocation framework. See IRS Publication 555 for more on domicile and community property at irs.gov.

What to send your CPA

When you hand the file to Alviso, CPA or your current tax professional, aim to send a package that answers the common questions they will ask about community and separate items. This reduces back and forth and speeds up filing.

Send a summary spreadsheet that tags community and separate for the year, with monthly totals for income and expenses. Include scanned copies of gift and inheritance documentation and any marital property agreements such as a prenup or postnup. Provide bank statements that show deposits used to fund major purchases, especially when you claim separate status. If one spouse had a business before marriage, include formation documents and any valuations or appraisals, along with payroll records or owner draw records for the year. Provide a list of estimated tax payments with dates, amounts, the spouse who made the payment, and the confirmation numbers. Finally, include a short statement of domicile if you lived in more than one state during the year.

If you want an organizer that already includes community and separate tags, request our template. We can share an Excel or Google Sheets file that matches the columns described earlier along with a one page handoff checklist that mirrors this section.

Motor vehicles and other Texas specific items

Texas transfer rules sometimes surface when spouses move titles between one another for cars and trucks. The Texas Comptroller has guidance on community property in the motor vehicle tax guide that offers practical examples of how titles and community rules interact. You can read it at comptroller.texas.gov. As with other property, the community presumption applies to vehicles acquired during marriage unless a spouse can prove separate status with clear and convincing evidence. Keep purchase documents and proof of funds for any vehicle you claim as separate.

Moving into or out of Texas

When you move between a separate property state and a community property state, your domicile and the date you changed domicile matter for both ownership classification and tax allocation. Publication 555 explains how to treat income during periods you were and were not domiciled in a community property state and how to handle items such as wages, business earnings, and income from property during each period. If you moved during the year, keep a clear timeline of addresses and dates, and label bank accounts for which domiciles they relate to during the tax year.

Common mistakes to avoid

Mixing separate and community funds in the same bank account and then paying a lot of unrelated bills from that account. Once flows are mixed, tracing is harder and more expensive. Keep separate accounts truly separate.

Putting rent or business income into a separate account because the property itself is separate. In many cases, the income during marriage will be community even if the principal is separate, so keep the income flow in a community account and label it correctly.

Forgetting about estimated tax allocations when filing Married Filing Separately. If both spouses made payments, be ready to show who paid what and how to allocate any joint payments. Use Form 8958 to support the split when required.

Assuming that every royalty or bonus is community income. Mineral and royalty law in Texas has special rules. Ask your CPA or attorney to review your title documents and payment statements.

Storing proof of separate property in personal email or a single paper folder. Save digital copies in a shared cloud folder with a simple naming convention so either spouse or your CPA can find them quickly if needed.

Frequently asked questions

Do we have to split every pay check in half on our returns when we file separately?

Under Publication 555, spouses domiciled in a community property state who file separate returns generally report one half of community income and all of their separate income. Wages earned during marriage are typically community income. Attach Form 8958 to show the split when you file separate returns. See Publication 555 and Form 8958 for details.

What if we file a joint return. Do we still need to track community versus separate?

Yes. Joint filing does not erase ownership rules. You still benefit from tracking for future years, for proof of separate status, for clean business accounting, and for estimated tax planning.

How do we treat rent from a house my spouse owned before marriage?

The house is separate. Rent earned during marriage is often community income under the Spanish rule concept. Keep records for both the property itself and the rent flows, and talk with your CPA about any exceptions that might apply to your facts.

Can we change separate property into community property or the other way around?

Spouses can enter into marital property agreements that change how property is classified. If you have or plan to have such an agreement, give a copy to your CPA. The accounting and tax treatment should line up with the agreement. Work with a Texas attorney before signing any agreement.

What happens if we cannot agree on how to split estimated tax payments?

When you file Married Filing Separately in a community property state and cannot agree on allocation for joint payments, IRS guidance uses a pro rata allocation tied to the separate tax liabilities. Publication 555 and Publication 505 explain the approach. Keep a log of payments by spouse to support the outcome.

What records should we keep for gifts and inheritances?

Keep donor letters, probate orders or trust distribution letters, proof of deposit, and a short note that explains the nature of the gift or inheritance and the date. Keep those records with your annual tax folder and store copies with your CPA.

Work with Alviso, CPA

Community property accounting is about building good habits and keeping straight answers to three questions. What is community, what is separate, and where is the proof. If you want a bookkeeping template that tags community versus separate and a short handoff checklist for tax season, contact Alviso, CPA in Texas and request the community property toolkit. We can review your current setup, help you label items correctly, and set up a monthly rhythm that fits your household and your business. If you own rentals, have a side hustle, or receive gifts or inheritances regularly, a short review call before the next quarter can save time and reduce filing stress.

Citations and resources

Texas Family Code Chapter 3, sections 3.001 to 3.003, official statutes at statutes.capitol.texas.gov.

Plain language summaries of sections 3.001 to 3.003 at texas.public.law.

IRS Publication 555 Community Property at irs.gov.

IRS Internal Revenue Manual community property guidance at irs.gov.

IRS Publication 505 Tax Withholding and Estimated Tax at irs.gov.

IRS About Form 8958 Allocation of Tax Amounts Between Spouses in Community Property States at irs.gov.

Texas Comptroller motor vehicle community property guide at comptroller.texas.gov.

Texas community property accounting for married couples does not have to be complicated when you apply a steady process. Keep separate items truly separate, tag community income as it comes in, save evidence, and coordinate estimated payments. With a clear year round routine, you and your CPA can file clean returns and keep your household finances on track.