Date: 03 Apr 2008
I was told that in order for full tax benefits for a married couple who own a house together the title for the house must be as community property, not as joint tenants. Otherwise, the IRS will disallow one-half of the increase in tax basis to fair market value at the date of death for one-half of the residence when the first spouse dies.
We have always held our property jointly, but never as community property. Supposedly, this new IRS ruling trumps California Community Property Law.
Could you address this in one of your newsletters?
Date: 25 Apr 2008
This is not a new ruling, but an old one.
There is a difference in the tax basis adjustment after death for spouses for community property compared to joint tenancy. As you said, the tax basis for the entire property is adjusted to the fair market value as of the date of death for community property, but only one-half for property held by two joint tenants.
With the exclusions available for gains from the sale of a principal residence, this isnít as big of a benefit as it once was, but it can still be significant.
This is not a matter of "trumping" California Community Property Law, itís based on old community property law concepts. The rules that apply for property division in a divorce are different.
You and your spouse should consult with an attorney before making a change in title. There are other legal issues involved aside from this tax benefit.
(By the way, the title to my home is community property.)
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