Community Property States--Tax Basis

[charlie]

Hi all,

In my former life on this forum I was known as "Charlie" and before that
"Chuck-Lyn". I am returning from limbo to pass on an important piece of
information just acquired. Namely,

In Community Property States like Texas, California and 7 others, the
tax basis of community property steps up to fair market value of the
property on the date a spouse dies. This is explained in IRS publication
# 555. I learned this recently when my wife's uncle-in-law passed away
and she acquire POA authority of her aunt's affairs. Since Lyn's eyes
glass over on financial things, I am helping her out.

In her aunt's case, the dear lady had worked for TXU her entire career and
accumulated quite a bit of company stock along the way. You may know
that TXU is going private through a buy-out. It was giving me heart burn
thinking about the big capital gain she would encounter until I learned this
welcome news. At least it was news to me.

Cheers,

Charlie

 

[MasterBlaster]

Charlie:

That is an interesting finding. I do have a question though. Property in California can be help by spouses as either "tennants in common" or as "joint tenants". The first method gives each party a 50% share of the property. The second method gives both parties full ownership.

If I were to guess (and that's what it is) is that the stepped up basis only occurs for property held as jopint tennants. My guess is that when the property is held as tennants in common then the 50 that you already had has the same basis as before, however the other 50% that you just inherited just got the basis stepped up to full market value.

Did I miss something here ? Please enlighten me if I am full of beans.

 

[charlie]

Hi Masterblaster,

I am not a lawyer so I suggest you read IRS Pub #555 and then consult
an expert if you need further clarification.

Cheers,

Charlie