Converting Separate Property To Community Property - Avoid Tax

It is common for a spouse who lives in a community property state to own separate property. Community property states include Arizona, California, Idaho, , Nevada, New Mexico, Texas, Washington, and Wisconsin.
In general, separate property consists of assets acquired by a spouse through a gift or inheritance, or assets acquired by a spouse prior to the marriage. Sometimes a family can benefit from a spouse converting separate property to community.
Example. Martha has separate property currently valued at $1,000,000. When she acquired the separate property decades earlier, it's value was $100,000. If Martha sells this separate property during her lifetime, regardless of when her husband, Donald, dies, Martha will pay capital gains tax on the $900,000 gain.
However, if Martha converted this separate property to community property, and then Donald died, all of it would get a step-up in basis when Donald died.
Section 1014(b)(6) of the Internal Revenue Code is the provision that provides that all community property gets a step-up in basis when the first spouse dies - not just the half of the community that was owned by the deceased spouse.
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This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.
Paul Rabalais
Estate Planning Attorney
www.RabalaisEstatePlanning.com

[@myutube6422]

You might want to make a video on how to not accidentally convert separate property to community property.

[@cookingblue22]

Would you please do a video on the reverse......converting community property to separate....as in JTWROS accounts, banking and brokerage?