community property in CA

[grandmabee]

Question. When a couple owns a home and husband dies in a community property state (CA) does she get stepped basis on the entire assest or just half. I have one that she moved and could not sell and now she is out of the home deduction time limit for sec 121

[JRS]

It depends on the deed. If it is John and Mary Doe, she gets the 1/2 step up basis. There is another way of titling the deed where the surviving spouse gets a full step up in basis. The only problem is I can't remember how it needs to be titled and my title is in a safe deposit box. I believe, and am probably wrong, it needs to say joint tenancy.

[BulldogTom]

I think they get the step up regardless of how the deed is written.

Tom

Lodi, CA

[JRS]

Community Property: In California, married couples may own property as "community property with rights of survivorship" which is essentially the same as joint tenancy, except that the entire property receives a basis step-up upon the death of one spouse. In this case, a later sale by the spouse of $1.0 million would not cause a taxable gain.

I have no cite for this, but I read somewhere the IRS will only honor the full step up, if the property is titled as above. If just Mr & Mrs, 1/2 step up. I think it was on the Tax Almanac Board a couple of years ago.