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Basis for Surviving Spouse in a Community Property State - California

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    Basis for Surviving Spouse in a Community Property State - California

    Here are the circumstances regarding a question that I have:
    Husband and Wife purchased a home together in California on January 1, 2007 for $795,000 which was recorded as Community Property with Right of Survivorship. It was later that year transferred to them as Trustees of their Trust.
    The Husband passed away on June 1, 2009. The fair market value of the property on the date of the Husband’s death was determined to be $495,000 due to the recession that occurred during that time.
    The Surviving Wife continued to live and own the home until 2015 when she converted it to rental property and moved to another home. In 2022 the Surviving Wife sold the home for $850,000. with $50,000. of sales expanses.
    The original basis for the property then was $795,000. when it was purchased and upon the Husband’s death, the Surviving Wife inherited the deceased Husband’s portion of the home.
    Internal Revenue Service Publication #523, Selling Your Home at page 10 and also IRS Publication #551, Basis of Assets at page 7 states the following language regarding Basis Adjustments for an Inherited Home in a Community Property State:
    “When either spouse dies, the total fair market Value of the Community Property becomes the basis of the entire property.”
    The question I have is, what is the basis for the property for the Surviving Wife at the time that the home was sold in 2022? (Is it the original basis, $795,000 plus any improvements and other adjustments, or is the basis from when the Husband died in 2009 of $495,000 plus any improvements and other adjustments?)

    #2
    Unfortunately for your client, it is $495,000, with the adjustments. That is also the amount that should have been used for depreciation purposes.

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