question about reporting 1099 in “American Rule” MFS community property state

My spouse and I filed MFS for 2025 for the first time. We are in a community property state (WA) and did so for student loan repayment reasons. I appear to have made a mistake on how I filed our Schedule Ds and need some input because I'm having a hard time finding any information on this.

When I filed our returns, I split everything evenly in half and reported it like that on form 8958. That includes a 1099 that was under my spouse's name only. The IRS sent us both letters, they ended up applying the whole amount of the 1099 to his return and I need to respond to a letter asking what that amount was on mine.

After some research – this was not easy info to find – I see that I missed some info about how "separate" property is handled in different community states. WA uses the "American Rule" which states that income from separate property can remain separate and since my spouse's 1099 was issued for capital gains from RSUs from a previous employer it appears the IRS is treating it as my spouse's separate property. If this is the case, I should have reported the full 1099 on my spouse's return and left it off mine entirely. Functionally for us this is joint income so I did not even consider that it might be treated as separate.

If possible, we would like to consider this community property and not separate property. Although the RSUs were under my spouse's name only, we jointly managed the account and have shared the capital gains. It would also benefit my spouse to have a lower AGI for student loan repayment reasons.

I could not find any information on whether it is *required* to report the 1099 separately or if we are allowed to report it as community income. If we are required to report it separately then I assume I'll need to do an amended return to remove that income off my 1040. If we are allowed to claim it as community property then I'm guessing we'll need to send response letters to the IRS explaining that, but I'm not sure if we'd need some kind of supporting documentation?

Any advice on how to tackle this would be appreciated.