Does Community Property Get a Double Step-Up in Basis? (w/Examples) + FAQs

This article reflects federal rules under IRC Section 1014 and the rules of the nine U.S. community property states as of June 2026 and covers tax year 2026. Tax law changes — confirm current figures before you file or sell.

Quick Answer

Yes. In the nine community property states, both halves of community property receive a full step-up in basis when the first spouse dies — not just the deceased spouse’s half. Under IRC Section 1014(b)(6), 100% of the basis resets to fair market value, often wiping out capital gains tax entirely.

The Tax Break Most Married Couples Never Hear About

If you live in a community property state and your spouse dies, the home, stocks, and rental property you owned together can have their entire tax cost reset to today’s value. That single move can erase a six-figure capital gains bill if you sell — but only if the property is titled and documented as community property, and only if you act before the first death. Title the same assets the wrong way, and you keep half the old cost and pay tax on decades of growth you never planned to owe.

This is one of the only tax advantages a person’s death creates, and it favors married couples in just nine states. With the federal long-term capital gains rate reaching 20% for high earners in 2026 — plus a possible 3.8% net investment income tax and state income tax on top — the dollars at stake are enormous. The rule is calm and settled federal law, but the mistakes around it are common, expensive, and almost always permanent.

Here is what you will learn:

🏠 What a “double step-up” actually is and why community property unlocks it
📋 The nine states where it applies — plus five “opt-in” states that let outsiders qualify
💰 Worked dollar examples showing tax savings of $100,000 or more
⚠️ The titling and documentation traps that quietly destroy the benefit
🧭 Exactly what to do next, which records to gather, and when to call a pro

What “Step-Up in Basis” Means

Your “basis” is what you paid for an asset, used to measure your taxable gain when you sell. If you buy stock for $50,000 and sell for $300,000, your gain is $250,000, and you owe capital gains tax on that profit.

A “step-up in basis” resets that cost to the asset’s fair market value on the owner’s date of death. Under IRC Section 1014, an heir who inherits that same stock — now worth $300,000 — takes a new basis of $300,000. If the heir sells right away for $300,000, the gain is zero and the tax is zero. All the growth during the decedent’s life escapes income tax forever.

The consequence of not understanding this is real money. A couple who sells appreciated property the day before a death pays full capital gains tax; the same sale the day after death can be tax-free. The rule rewards holding appreciated assets until death rather than selling early. A common misconception is that a step-up is a deduction you “claim” on a form — it is not. It happens automatically by operation of law, but you must keep proof of value at death to use it later. What you should do: get a dated appraisal or statement showing the fair market value on the date of death, and store it permanently.

Single Step-Up vs. Double Step-Up

The difference between a single and a double step-up is the whole point of this article, and it is worth slowing down on. In a regular (common law) state, a married couple owns property in two separate halves. When one spouse dies, only the deceased spouse’s half steps up to current value, as confirmed in IRS Publication 551. The surviving spouse keeps their original low basis on their own half.

In a community property state, the law treats the asset as owned by the marital “community” as a single unit. So under IRC Section 1014(b)(6), when one spouse dies, both halves reset to fair market value — the decedent’s half and the survivor’s half. This is the “double step-up.” It is not a gimmick; it is written into the federal tax code specifically for community property.

The consequence of living in the wrong state — or titling property the wrong way in the right state — is that the surviving spouse inherits a stale, low basis on half the property and pays tax on years of appreciation when they sell. A common misconception is that simply being married gives you the double step-up. It does not. The property must carry community property character. What you should do: confirm both where your property is sourced and how it is titled, because both control the result.

The Nine Community Property States

Only nine states use a community property system, and the double step-up flows from that status. They are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, as cataloged in IRS Publication 555. If you are married and domiciled in one of these states, property acquired during the marriage with marital earnings is generally community property by default.

The consequence of geography here is direct: a couple in Texas and an otherwise identical couple in New York get opposite tax results on the same death. The Texas survivor can sell appreciated property tax-free; the New York survivor pays tax on half the gain. A common misconception is that “joint” titling in a community property state is automatically community property — it is not, and ordinary joint tenancy can forfeit the benefit. What you should do: if you live in one of the nine states, verify your deeds and account titles say “community property” (or community property with right of survivorship), not plain “joint tenants.”

Quasi-Community Property and Moving States

If you earned assets while married in a non-community-property state and then moved to a community property state like California or Washington, those assets can be treated as “quasi-community property.” For income tax basis purposes, that generally lets them qualify for the double step-up, even though they were not originally acquired under community property law.

The flip side is the bigger trap: if you build community property in Texas and then move to a common law state like Florida or New York, the community character can fade unless you take steps to preserve it. The consequence is a lost double step-up worth tens of thousands of dollars. What you should do: if you are relocating either direction, ask an estate attorney about a community property agreement or trust before the move, not after.

The Five “Opt-In” Elective States

Five states let couples — sometimes even non-residents — elect into community property treatment through a special trust, chasing the same double step-up. These are Alaska, Tennessee, South Dakota, Kentucky, and Florida, as discussed in this elective community property overview. Couples create a community property trust, fund it with appreciated assets, and the trust property is then treated as community property for basis purposes.

The appeal is obvious: a couple in a common law state can capture the same 100% basis reset their neighbors in California enjoy by default. The consequence of doing it wrong is that the IRS could challenge the treatment, so the trust must be drafted and administered carefully. A common misconception is that these elective trusts are settled, risk-free, and identical to true community property — they are newer, less tested, and details can be contested. What you should do: treat an elective community property trust as advanced planning that requires an experienced estate attorney, not a DIY form.

Which Situation Applies to You?

The right answer depends on where you live, how your property is titled, and whether a spouse has already died. Use this to find your path:

You live in one of the nine community property states and both spouses are alive: Focus on titling and documentation now to lock in the double step-up.
You live in a common law state and both spouses are alive: Look at whether an elective community property trust or a relocation fits your situation.
Your spouse has already died: You cannot create new community property, but you must establish and document the fair market value on the date of death to claim whatever step-up applies.
You moved between states: Quasi-community property and community property agreements decide your result — get advice before selling anything.
Your assets are retirement accounts: No step-up applies at all (explained below), so plan those separately.

Worked Example: $199,800 in Tax, or Zero

Numbers make this real. Consider John and Mary, who bought a home in 1990 for $200,000. By 2026 it is worth $1,400,000 — a $1,200,000 gain. John dies in early 2026, and Mary plans to sell.

In a separate property (common law) state, only John’s half steps up:

Mary’s half keeps its original basis: $100,000
John’s half steps up to fair market value: $700,000
Mary’s total basis: $800,000
Sale at $1,400,000 produces a $600,000 taxable gain
Federal tax at 20%: $120,000
A state income tax of 13.3% would add another: $79,800
Total tax: about $199,800

In a community property state, both halves step up:

Mary’s half steps up to: $700,000
John’s half steps up to: $700,000
Mary’s total basis: $1,400,000
Sale at $1,400,000 produces a $0 gain
Total tax: $0

The double step-up saves Mary roughly $199,800 on the identical asset. The only difference is the community property character of the home. This is why the IRS rules in Publication 551 and the titling on your deed matter more than almost any other estate planning choice you make.

Three Common Scenarios

Scenario 1 — Appreciated Brokerage Account

A couple holds an index fund bought for $100,000, now worth $500,000, as community property.

What Happens at the First Death	Tax Result for the Survivor
Both halves step up to $500,000 fair market value	$0 gain if sold near death; the entire $400,000 of growth escapes capital gains tax

Scenario 2 — Rental Property Held as Joint Tenants

The same couple owns a rental bought for $300,000, now worth $900,000, but titled as plain joint tenants in a community property state.

What Happens at the First Death	Tax Result for the Survivor
Only the decedent’s half steps up; survivor keeps the old basis on their half	Survivor’s basis is about $600,000, leaving a $300,000 gain and a tax bill the couple could have avoided

Scenario 3 — Asset That Lost Value (Step-Down)

The couple owns stock bought for $200,000 that has fallen to $80,000 at the first death.

What Happens at the First Death	Tax Result for the Survivor
Both halves step down to $80,000, erasing the built-in loss	The $120,000 loss is gone forever; selling before death would have preserved a usable capital loss

Three Named Examples

Maria in Phoenix (titling done right). Maria and her late husband held their Arizona home and brokerage account as community property with right of survivorship. When he died in 2026, both halves stepped up under IRC Section 1014(b)(6). Maria sold the brokerage account near date-of-death value and owed no capital gains tax on $380,000 of lifetime growth.

David in Dallas (the joint tenancy trap). David’s parents held their rental property as joint tenants, not community property, even though Texas is a community property state. When his father died, only half the property stepped up. David’s mother later sold and paid tax on roughly $250,000 of gain that proper community property titling would have erased.

Susan in Nashville (the opt-in route). Susan and her husband live in Tennessee, a common law state. On advice from their estate attorney, they moved appreciated stock into a Tennessee community property trust. When her husband died, the trust assets received a full double step-up, saving an estimated $90,000 in capital gains tax.

What Property Qualifies — and What Does Not

Community property generally includes assets acquired during the marriage with marital earnings: the primary residence, investment property bought during the marriage, stocks and funds purchased with community money, and business interests built during the marriage. These are the assets that earn the full double step-up under Publication 555.

Separate property does not get the double step-up. Property owned before the marriage, or received as a gift or inheritance by one spouse, stays separate and gets only a single step-up on the deceased spouse’s share. The consequence of mixing the two — called “commingling” — is messy records and a possible loss of the benefit. What you should do: keep separate property clearly separate, and document the source of funds for anything you want treated as community property.

Retirement Accounts Get No Step-Up

This surprises people. IRAs, 401(k)s, and other tax-deferred retirement accounts do not receive any step-up in basis, in a community property state or anywhere else. They hold pre-tax dollars, so distributions are taxed as ordinary income to the beneficiary regardless of titling. The consequence of assuming otherwise is a budgeting shock for the survivor. What you should do: plan retirement accounts with beneficiary designations and required distribution rules in mind, not basis strategy.

Community Property vs. Joint Tenancy vs. Common Law

The titling choice is where most of the money is won or lost. This table contrasts the three setups on the points that matter for the step-up.

Feature	Community Property	Joint Tenancy / Common Law Ownership
Step-up at first death	Both halves reset to full fair market value	Only the deceased spouse’s half steps up
Capital gains exposure for survivor	Often eliminated entirely	Tax on the survivor’s retained half of the gain
Where it applies	The nine community property states (and elective trusts)	Common law states, or mis-titled assets anywhere
Best for the survivor selling appreciated assets	Maximum benefit	Partial benefit only

The lesson is plain: in a community property state, holding appreciated assets as community property — rather than as ordinary joint tenants — is what unlocks the full reset. You can convert joint tenancy to community property by recording a new deed or signing a community property agreement, but it must be done while both spouses are alive. After a death, it is too late.

Mistakes to Avoid

Holding assets as plain joint tenants in a community property state. You forfeit half the step-up and your survivor pays tax on appreciation that should have been erased.
Assuming marriage alone gives the double step-up. It does not; the property must carry community property character, or the benefit is lost.
Selling highly appreciated property right before a death. You trigger the full capital gains tax that holding until death would have eliminated.
Forgetting that retirement accounts get no step-up. Planning around a basis reset that never applies leaves the survivor with a surprise ordinary-income tax bill.
Failing to get a date-of-death valuation. Without an appraisal or statement, you cannot prove the stepped-up basis when you sell years later, and the IRS can disallow it.
Commingling separate and community property. Sloppy records can convert clean community property into a disputed mess that loses the benefit.
Moving states without preserving community character. A move to a common law state can quietly strip the double step-up unless you sign a community property agreement first.
Ignoring the step-down risk on declined assets. Letting a loss asset pass at death erases the loss forever; selling before death would have preserved a deductible capital loss.

Do’s and Don’ts

Do’s

Do title appreciated assets as community property (or community property with right of survivorship) — because that is the trigger for the full reset.
Do document the source of funds and date of acquisition — because it proves community property character if the IRS asks.
Do get a professional date-of-death appraisal — because it locks in your stepped-up basis with hard evidence.
Do review your deeds and account titles now — because changes only work while both spouses are alive.
Do hold appreciated property until death when feasible — because the step-up can erase decades of taxable gain.

Don’ts

Don’t rely on plain joint tenancy — because it gives only a single step-up and costs your survivor real tax.
Don’t sell big winners just before an expected death — because you give up a tax-free reset.
Don’t sell big losers at death — because the step-down destroys a loss you could have used.
Don’t assume your state follows community property — because only nine do, and titling rules still apply.
Don’t DIY an elective community property trust — because these are newer and contested, and errors are hard to fix.

Pros and Cons of Relying on the Double Step-Up

Pros

Eliminates capital gains tax on lifetime growth — because basis resets to full value at the first death.
Available automatically in nine states — because community property is the default for marital assets there.
Simple for the survivor — because no special form or election is needed to claim it.
Works on most asset types — because homes, stocks, rentals, and businesses can all qualify.
Can be imported elsewhere — because elective trusts and quasi-community property extend the benefit.

Cons

It cuts both ways — because declined assets step down and lose the built-in loss.
Titling errors silently destroy it — because joint tenancy gives only half the benefit.
Retirement accounts are excluded — because pre-tax dollars never get a step-up.
It requires planning before death — because nothing can be fixed after the first spouse dies.
Elective-trust treatment is less settled — because the law is newer and could be challenged.

What to Do Next

If you want to secure this benefit, move in order:

Pull your deeds and account statements and read exactly how each appreciated asset is titled.
Flag anything held as “joint tenants” in a community property state and ask about converting it to community property.
Gather proof of community property character — marriage date, acquisition dates, and source of funds.
If a spouse has died, order a date-of-death appraisal now for real estate and save brokerage statements showing value on that date.
Talk to a CPA or estate attorney if you own a business, hold property in a trust, recently moved states, or are considering an elective community property trust — situations where the dollars and the rules are complex.

This article is educational and is not a substitute for advice from a licensed CPA, tax attorney, or estate attorney for your specific situation. When real property, a business interest, or an out-of-state move is involved, professional help — typically a few hundred to a few thousand dollars — is usually worth far less than the tax it can save.

Frequently Asked Questions

Does community property get a double step-up in basis?

Yes. In the nine community property states, both halves of community property reset to fair market value when the first spouse dies, under IRC Section 1014(b)(6). That can eliminate capital gains tax on the entire lifetime appreciation.

Which states allow the double step-up?

Nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Five more — Alaska, Tennessee, South Dakota, Kentucky, and Florida — allow it through an elective community property trust.

Does joint tenancy get the double step-up?

No. Joint tenancy property gets only a single step-up on the deceased owner’s share. To capture both halves, the asset must be held as community property, which is why retitling matters.

Does the surviving spouse have to do anything to claim it?

No form is required. The step-up happens automatically by law. But the survivor must keep proof of fair market value on the date of death to support the new basis when selling later.

Do retirement accounts get a step-up in basis?

No. IRAs, 401(k)s, and similar accounts hold pre-tax dollars and receive no step-up. Distributions are taxed as ordinary income to the beneficiary regardless of state or titling.

Does a step-down ever happen?

Yes. If community property has lost value at death, both halves step down to the lower value, and the built-in loss disappears. Selling such assets before death can preserve a deductible loss.

What is quasi-community property?

It is property earned while married in another state, then brought into a community property state. For basis purposes, it generally qualifies for the double step-up as if it had been community property all along.

Can I get the double step-up if I live in New York or Florida?

Sometimes. New York follows common law, so only one half steps up by default. Florida offers an elective community property trust that can capture the full double step-up if set up correctly.

Does the federal estate tax exemption affect the step-up?

No. The income tax step-up under Section 1014 applies regardless of whether the estate owes any federal estate tax. The two rules operate separately.

Did 2025 or 2026 tax law change the step-up rule?

No. The Section 1014 step-up, including the community property double step-up, remains in effect for tax year 2026. Confirm current figures with the IRS before you sell.

How much can the double step-up save?

Often six figures. On a home that grew from $200,000 to $1,400,000, the double step-up can erase roughly $200,000 in combined federal and state tax compared with a single step-up in a common law state.

Should I retitle my property myself?

Usually no. A simple deed change is sometimes DIY, but commingling, trusts, and out-of-state moves create traps. An estate attorney protects the community property character that the benefit depends on.

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