Basis of real estate property in community property states

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The basis of property can be tricky, especially in Community Property states. Here is an extract from IRS Publication 17 that may be of service to you.

"Community property. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), husband and wife are each usually considered to own half the community property. When either spouse dies, the total value of the community property, even the part belonging to the surviving spouse, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return.

Example. You and your spouse owned community property that had a basis of $80,000. When your spouse died, half the FMV of the community interest was includible in your spouse's estate. The FMV of the community interest was $100,000. The basis of your half of the property after the death of your spouse is $50,000 (half of the $100,000 FMV). The basis of the other half to your spouse's heirs is also $50,000. "

It is always imperative to seek estate counsel in the state where you are domiciled for accurate and up to date advice for your particular situation.

Additional Resources

IRS Publication 17, Your Federal Income Tax IRS Publication 555, Community Property.

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