Stepped Up Basis for Community Property?

[Bonny]

Hi All,

This is a post for a friend I'll be seeing on the 4th of July. My numbers are hypothetical because I don't know the exact numbers.

Friend's father died about 4 years ago and mom went into an assisted living facility just over three years ago and rented out the family house which is located in an upscale neighborhood just outside of Sacramento CA. I think we're beyond the 2 out of 5 year limit to exclude cap gains.

The real estate market in the Sacramento area is literally and figuratively HOT and I think the family should take advantage and sell. So far they have a good tenant but it sounds like the house is starting to get a little worn.

Although I know when one spouse dies in a joint tenancy situation the remaining spouse gets a stepped up basis on the deceased's half. But in the back of my mind I think there's a special rule with community property and that the whole property may be stepped up? Could someone set me straight on this?

I appreciate your help. I tried searching on irs.gov but I'm probably not using the correct key words.

Thanks!

PS I have no skin in the game but would like my friend to not have to deal with the headache of dealing with an out of town rental property with four other siblings.

[rangerj]

See section 1014(b)(7) "Basis of Property Acquired From a Deceident". This should be discussed with an estate tax attorney.

[Bonny]

Jul 1, 2015 12:08:26 GMT -5 rangerj said:

See section 1014(b)(7) "Basis of Property Acquired From a Deceident". This should be discussed with an estate tax attorney.

Hi Ranger and thanks for your response!

[rangerj]

Also note that if the FMV was less than the original cost basis (or adjusted basis) then the depreciation would have been based upon the lower FMV which could effect the adjusted basis, depreciation recapture (possibly), etc. You would also have "income with respect to a deceident", estate trust, and possibly state (CA) and local considerations.

[Bonny]

Jul 2, 2015 9:50:42 GMT -5 rangerj said:

Also note that if the FMV was less than the original cost basis (or adjusted basis) then the depreciation would have been based upon the lower FMV which could effect the adjusted basis, depreciation recapture (possibly), etc. You would also have "income with respect to a deceident", estate trust, and possibly state (CA) and local considerations.

This is a family home that was probably purchased 40 or 50 years ago. Value is probably up $200k since the father passed away. I'm sure the mother will need to pay Fed & State cap gains which will probably be in the 30k range by the time it's all said and done. But paying $30k is still going to be cheaper than trying to sell if mom passes during a market correction if FMV is currently around $800k. A 10% correction is $80k!