Converting House Title From Joint Tenancy To Community Property After Spouse Dies

[Zigner]

It sounds like you agree with ' Taxing Matters ' that in California our house would be community property no matter what the title on the deed is ( Joint tenancy ).

The two terms are not mutually exclusive. It's not an "either/or" proposition.

 

[HMR2]

When selling any property (whether real, personal, or intangible) the gain realized on the sale for federal and California income tax purposes is determined by subtracting the taxpayer's adjusted basis in the property from the net sales price (gross sales price less certain expenses of sale). In the case of purchased real estate the adjusted basis is generally the price the taxpayer paid for the property plus the costs any improvements made to the property and less any depreciation allowed or allowable.

However, the rules are different for property acquired either by gift or inheritance. In the case of a property interest that is inherited (which includes for this purpose property that passes by operation of law on the death of the owner, like property held as joint tenants with a right of survivorship) the person receiving that property gets a basis in the property equal to the fair market value (FMV) of that interest on the day the decedent died (or, in rare cases, the date six months after the date of death). Because that FMV is generally going to be higher than the decedent's adjusted basis in the property right before death the adjustment to basis that occurs when property is inherited/passed at death is generally known in the tax community as a "step up" in basis, i.e. the basis is stepped up from the previous adjusted basis to FMV.

Property held as community property has the unique potential to step up not just the basis of the decedent spouse's interest in the property, but also the surviving spouse's interest in the property. That is what the OP is seeking here.
[/QUOTE]
Yes, you are so correct. The difference between a 1/2 step-up where only the decedent is included and a full step-up where both of us are included is significant.

 

[zddoodah]

Interesting comment that you make about " affidavit of death of joint tenant or affidavit of surviving spouse succeeding to title to community property ". When I do report her death will I be given that choice ?

You're not "reporting her death." You can record either of those documents. You could even record both if you wanted. An affidavit of death of joint tenant might make for a cleaner title record.

It sounds like you agree with ' Taxing Matters ' that in California our house would be community property no matter what the title on the deed is ( Joint tenancy ).

Had it ever become an issue when she was alive, it would have been treated as community property, but it's largely moot now. I cannot intelligently comment on -- and defer to "Taxing Matters" about -- any tax issues.

 

[HMR2]

Again, I've not reviewed the specific facts of the ownership of your home. However, assuming that under California law the home was community property and that you each owned a 50% community property interest in it (which is the most common situation for property purchased by a married couple in California) then you would indeed get the benefit of the full step up in basis to FMV on the date your spouse died. The title described on the deed to the property does not determine if the property is community property. Even if you held it just in your name alone it may still have been community property. Check with a tax attorney to verify the extent to which this home was community property and to see what you need to do to establish the basis. You'll need a reliable appraisal of the property showing what it was worth (i.e. what comparable properties in your area would have sold for) at the time your wife died to help you determine what your basis is. The sooner you get that, the better.

Yes, it was regular transaction. No special considerations. We, a married couple in California, purchased this house in 1992 and titled as joint tenancy ( which I believe was how a majority of married couples did it back then ).

 

[HMR2]

Again, I've not reviewed the specific facts of the ownership of your home. However, assuming that under California law the home was community property and that you each owned a 50% community property interest in it (which is the most common situation for property purchased by a married couple in California) then you would indeed get the benefit of the full step up in basis to FMV on the date your spouse died. The title described on the deed to the property does not determine if the property is community property. Even if you held it just in your name alone it may still have been community property. Check with a tax attorney to verify the extent to which this home was community property and to see what you need to do to establish the basis. You'll need a reliable appraisal of the property showing what it was worth (i.e. what comparable properties in your area would have sold for) at the time your wife died to help you determine what your basis is. The sooner you get that, the better.

RE: the affidavit of death do you agree that submitting the joint tenancy surviving spouse document is the better choice ? Will this affidavit have any bearing on my full step-up or is it unrelated ?