A husband and wife own a property together. The property is owned as community property.
Husband dies.
The stepped up basis, the cost, is now the value of the property at the date of the husband’s death?
So if property is sold at that value, there is no capital gain?
Why would couple own anything as tenants in common in a community property state?
Generally, only half the basis of the property would step up at the husband’s death. If the couple bought the property for $100,000, and it had a fair market value of $200,000 when the husband died, the widow’s basis in the property would be $150,000.
It is pretty unusual anywhere for a married couple to own anything as tenants in common. They might do that in a community property state if (a) they acquired it with separate property, not community property, (b) they wanted to maintain their interests as separate property, and © they did not want the surviving spouse to become the sole owner when the first spouse died. For example, if it were a second marriage for both, and they both had children from their earlier marriage, and they purchased investment property but wanted their children, not their second spouse, to inherit their interest when each of them died.
@JHS, I thought the tax situation was the way you described but I think there was a change in the tax laws.
Community property should receive a full step up to FMV at the first death. So a sale after the death should result in little or no gain (only gain would be additional appreciation after the DOD step up to FMV).
@arc918, thanks.
That could be awesome. 
Nice to know. May have to revisit how we have our property titled.
Be sure to discuss with an attorney in your state. I live in CA, which is a community property state.
My estate attorney mentioned this to me.
I am in California.
I hope my parents didn’t screw this up. They may have purchased the property as a joint tenancy. They changed ownership to a living trust in 2009.
I have a cpa who specializes in estates looking at this.
I just looked at the trust. Says Schedule A… Community property.
Hope that flies.
It is really a good idea to run these issues by your estate planning attorney who SHOULD remain current on titling and how that affects basis at death. These issues can and do vary by state, so there’s no “one size fits all.” It amazes me how folks want to cut corners and can end up paying a huge unexpected amount by not having all the most current info in making plans.
If the trust was properly funded (changing title of the assets) then you should be fine. Good luck!
@arc918, thanks!
Wow. I was never aware of the double step-up for community property. That’s just ridiculous. I looked at the statute, which has been in place since 1947, so it’s hardly new, and frankly I don’t think that’s what the words mean at all. But clearly at some point someone decided that’s what they mean.
My father died few years ago and that’s how it was explained to my mother. The step was for 100%, not 50%.
@JHS, I am surprised too. I don’t remember this when I took accounting and tax courses. (I thought I was going to be a cpa). I think I better keep my mouth shut on tax laws now. I never imagined this was true. What a gift! What an unnecessary gift. 
Is that for state AND federal purposes? The link is a CA state code, what about the feds?
I’m in VA, I was told my cost basis is calculated as 50% = 1/2 the market value at time of H’s death PLUS the other 50% = 1/2 the original cost added to 1/2 of the cost of all improvements done while H was alive and all of the costs of improvements done since he has died. Subtract that total from the proceeds from the sale of the house to get capital gains. Exclusions apply based on occupancy and time since death.
When my inlaws died in the 90s, the basis was just increased in the amount of the share of the person who died. Haven’t talked with estate attorney about any other possibility and he never mentioned it when we were figuring out our estate plan a few years ago.
VA is not a community property state, indeed you get a half step up in common-law states.
I promise you get a full step up to FMV on the first death in California.