When a married couple takes title to a home in California, they usually take title as joint tenants. Another method is to take title as community property with right of survivorship. Many assume taking title as joint tenants or community property with right of survivorship mean the same thing, but there are important differences. For example, upon the death of the first spouse there might be significant tax differences between the two methods.

To better illustrate the effects of title being held in joint tenancy or community property with right of survivorship, consider the following example. A husband and wife purchase a property for $100,000.00. Usually this translates to a $50,000.00 tax basis for each spouse in the property. If the husband passes away, and the wife decides to sell the property, the fair market value of the house at the time of the husband’s death becomes a major concern for capital gains tax treatment.

Joint Tenancy

Assuming the fair market value is $200,000.00 and the property was held in joint tenancy, only the husband’s basis in the property receives a “step up” from $50,000.00 to $100,000.00 (based on his half of the fair market value of $200,000.00). Since it was held in joint tenancy, the wife will automatically inherit her husband’s half of the property (as well as the stepped-up basis). However, the wife will not receive the same step up, but rather her original basis will stay at $50,000.00. If she sells the property for $200,000.00, then she will be responsible for capital gains tax on the remaining $50,000.00, since her basis has become $150,000.00 (her original basis plus her husband’s).

Community Property with Right of Survivorship

However, consider if the property was held as community property with right of survivorship. Upon the death of the husband, the same situation occurs with the husband’s one half: there is a step up in his basis from $50,000.00 to $100,000.00, and the wife automatically receives this interest. This time, however, the wife also receives the same step up in basis of her one half. Thus, if she sells the property for $200,000.00, she will not owe any capital gains taxes since her basis has become $200,000.00 (her stepped-up basis plus her husband’s). Every family situation is different, requiring different methods to be used. Ultimately with our clients we place their home into their revocable living trust, but we also make sure that title is properly identified before we transfer the property to the trust. This is just one of the many subjects we discuss with clients during the initial complimentary consultations. If you would like to schedule your consultation, feel free to call or email us to get the conversation started! 818.956.9200

Glendale Location

616 E. Glenoaks Boulevard, Suite 203

Glendale, CA 91207

Sherman Oaks Location

15303 Ventura Boulevard, Suite 900

Sherman Oaks, CA 91403