peteraclark[at]nospam.com (Eric Cantona) wrote:

- quote -

No.

Well ... maybe.

First, it is very difficult to make a defensible change of
residence while your spouse remains in California, unless
you are estranged from her. There are circumstances under
which it does happen, such as a permanent change of station
transfer of an active duty military member, or an absence
under an employment-related contract for an uninterrupted
period of 18 months or more. However, it doesn't sound as
though you are in the military or would be moving for
employment-related purposes.

Second, if the S corporation stock was acquired during your
marriage while you were domiciled in California or another
community property state, it is probably community
property,and will remain so even if you move to a separate
property state. As a result, your wife's community 1/2 of
the flowthrough income would remain subject to California
tax. Similarly, your community 1/2 of her California
earnings would be subject to California tax. You will have
California source income (from her earnings) and therefore
you would not be eligible to file separate returns unless
you also file separately for federal purposes. If your
spouse is a resident and you are a full or part-year
nonresident, you would be required to file a joint return on
a Form 540NR unless you file separate federal returns.

A more practical approach is for both spouses to move away
from California. Pull up your stakes and really move to a
no-tax or low-tax jurisdiction before the sale takes place.

Katie in San Diego

The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Eric Cantona wrote:

- quote -

Relocating to a no income tax state would help. Filing
a MFS return in California probably would not, as half her
wage income would be attributed to you on your separate
California return.

The relocation has to be real, though. If you intend to
move back after the sale, it's no good. If you DO move
back after the sale, California will try to demonstrate
that you intended to.

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Hi - I have the following situtaion was hoping to get some input:

I reside in California with my wife and have for the last three
years. Within the next 3-4 months I expect to make a significant
capital gain on the sale of real estate assets held by a Chapter S
corp located outside of California (as are the assets).

While my wife does earn wage income, I do not.

In addition the Chapter S shares are held in my name only and
have not been comingled.

My question is can I reduce my california capital gains tax by
relocating to a no income tax state and filing a married but
separate return while my wife remains in California?

THANK YOU for your time and help!

Eric

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