A: California offers a unique tax planning opportunity for married couples: the double step-up in capital gains basis. When one spouse passes away, both halves of a community property asset — including real estate — receive a step-up in basis to the fair market value as of the date of death.
For example, if a married couple purchased their home for $400,000 in 1986 and it’s worth $1.6 million at the time of one spouse’s death, the tax basis is adjusted (“reset”) to $1.6 million. If the survivor sells shortly after, there will likely be little to no capital gains tax owed.
However, this benefit does not happen automatically. The home must be properly characterized as community property — typically through a revocable living trust combined with a community property agreement (or, in some cases, by changing title from joint tenancy to community property with right of survivorship).
We encourage potential clients — especially older married couples with appreciated property — to confirm how title is held and whether their estate plan is aligned with their current circumstances.
