What Happens to Community Property When You Relocate and How is it Taxed?
Full Question:
Answer:
Unlike California, Minnesota isn't a community property state. The answer will depend in part on whether the property is real property (land, house, etc.) or personal property (assets other than real estate), any contracts between the spouses, and whether commingling has occurred. Generally, the federal tax law that applies to an interest in real property will be determined by the location of the property. However, courts may apply community property principles to real property located in a common law state in an action solely between the spouses, if the property was acquired with community property funds.
Generally, the federal tax law that applies to personal property will be determined by the domicile of the spouses at the time of acquisition. If the spouses have different domiciles, the interests of the spouses will be determined by the law of the state which has the most significant relationship to the spouses and the property.
Under federal tax law, whether you have community property and community income depends on the state where you are domiciled. if you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule does not apply to registered domestic partners).
Community property recognizes the equal contribution of both parties to the marriage even though one;or the other may earn more income through employment. By agreement or action the married couple can turn (transmute) separate property into community property, including by commingling community and separate funds in one account.
For an in depth discussion of Minnesota state law since adoption of The Uniform Disposition of
Community Property Rights at Death Act, please see the information starting on page 6 at the following link:
http://www.minncle.org/attendeemats/29013/HO_IrwinNelsonSjoberg_CommunityMaritalPropertyRights.pdf
Please see the information at the following links for further discussion:
http://www.irs.gov/publications/p555/ar02.html
http://www.irs.gov/irm/part25/irm_25-018-001.html#d0e102
https://theestateplanningsource.com/2013/09/10/overview-minnesota-estate-tax-laws/
http://www.revenue.state.mn.us/Forms_and_Instructions/m706_inst_13.pdf