Community Property & Stepped up Basis

[Cathy]

Husband and Wife lived in a community property state and had purchased home together years ago.

Husband died and his wife got usufruct over the kids 1/2 interest (no will) with wife's 1/2 and kids 1/2 inerest all getting the stepped up basis as FMV at the time of husband's/father's death was greater than the actual cost basis.

Mother died a couple of years ago while still living in the home.

Question: Do the children once again get the benefit of the stepped up basis of their original 1/2 interest (after father died) as the fair market value of the home is now larger than when father died....or do they use their 1/2 stepped up basis when their dad died and their stepped up basis of their mother's 1/2 interest at the time of her death? Or perhaps to make it clearer, if the home was valued at $100,000 when the father died and had grown in value to $150,000 when their mother died, what is the kids' cost basis:

($50,000 -1/2 of stepped up basis when their dad died + $75,000 1/2 stepped up basis when their mother died) = $125,000

OR

$150,000 which would be a double-double stepped up basis?

All comments appreciated as long as you don't make me cry because I'm almost nuts at the moment!

Take care

Cathy

[Lynn EA USTCP in Louisiana]

Cathy, the children inherited their father's half and received a stepped up,basis on that half at father's death. That will not change.

Then with Mother's death the children inherit Mother's half, receiving Mother's half at stepped up basis at her death. each 'half' has a differing stepped up basis.

So, using the $ in your example.

Half of $100,000 at father's death = $50,000 , owned by mother

And $50,000 shared by children

At Mother's death total house is valued at $150,000, half of which is already owned by children at their cost basis of $50,000

Children inherit Mother's half now valued at $75,000

At Mother's death total basis of house to,children is $125,000 ($50,000 and $75,000)

Hope this helps

Lynn

EA in LA

[Cathy]

Lynn,

Thanks so much! That's exactly how I've handled it over the years...just wanted to make sure!

Take care (and thanks again),

Cathy