RDP Community Property Allocations
RDP couples residing together in community property states, like CA, must file separate federal returns as single individuals, and their separate federal returns should include community property allocations, as detailed on Form 8958. However, as many prior posters have pointed out, Form 8958 in ProSeries is informational and does not change any calculation on the federal return.
To accurately reflect the community property allocations on each federal return, some preparers enter half of each partner's community amounts on each return, but this can result in IRS mismatch notices. Accordingly, some preparers enter aggregate adjustments for income, deductions, withholding, and credits (e.g., an aggregate income adjustment is entered on Schedule 1, Line 1z on both federal returns). This potentially resolves the mismatch notices, but aggregate adjustments may not yield accurate calculations overall (e.g., qualified dividends are taxed differently than ordinary dividends). Additionally, certain negative adjustments result in e-file rejections from the software (e.g., a negative withholding adjustment on Form 1040, Line 25c results in an e-file rejection).
Ideally, ProSeries should support entering community property allocations independent of the info from each partner's underlying tax forms. This would help ensure the accuracy of the federal returns while preventing IRS mismatch notices and e-file rejections from the software.
