Tax Q&A;: How to Own Home

Q: My husband and I are buying our first home. We can own it either jointly with right of survivorship or as community property. We read that if we own it jointly, the IRS could take a bigger chunk of our wealth than necessary in estate taxes. What does this mean? Should we own the home as community property and specify in our will that we want the other to get their half upon death? Or is joint ownership the way to go? How much tax are we talking about?

A: Your question is a common one in California, which is one of only eight states that allow for property to be held as community property.

Generally, gain on the sale of an asset--your taxable profit--is computed by subtracting the amount paid for the asset from the selling price. The original amount paid is called the “basis.” When an individual dies, the basis for computing gains and losses is “stepped up” to the fair market value of the assets on the date of death.

The major difference between joint tenancy and community property, for tax purposes, occurs when one spouse dies. With joint tenancy property, only half the basis (that portion belonging to the deceased spouse) gets “stepped up.” Whereas a residence owned as community property would get a stepped-up basis for both the decedent’s half as well as the surviving spouse’s half. Therefore, holding the house as community property should allow the surviving spouse to sell the family residence with little or no future income tax consequences.

--Geoffrey Bremer, CPA

Bremer & Hockenberg

Marina del Rey

For more information on taxes and to see other questions and answers in this series, go to The Times’ Web site at https://ww.latimes.com/taxes. To find a CPA, visit the California Society of CPAs at https://www.calcpa.org.