Question

Jim Johnson and his wife, Peggy, own a residence as community property. Jim died on June 5 of the current year. On the date of death, the residence had a basis of $90,000 and a FMV of $130,000. What is Peggy's basis in the residence?

Answer 1

$130,000

Step-by-step explanation:

Since Jim and Peggy owned the house as community property, at Jim's death the property rights pass directly to Peggy, so she owns 100% of the house.

When one spouse dies, section 1014(b)(6) establishes that community property assets step up 100% to match fair market value. In this case, the basis for the house will increase from $90,000 to $130,000.