Liam and Isla are husband and wife and have always lived in a community property state. At the time of Isla's prior death, part of their community property includes: $$\begin{array} { c c }
&\text { Adjusted } & \text { Fair Market } \
&\text { Basis } & \text { Value } \
\text { Stock in Scarlet Corporation }&\$ 2,000,000 & \$ 1,000,000 \
\text { Apartment building }&3,000,000 & 6,000,000
\end{array}$$ Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in these properties is:

Question

Liam and Isla are husband and wife and have always lived in a community property state. At the time of Isla's prior death, part of their community property includes: $$\begin{array} { c c } 
&\text { Adjusted } & \text { Fair Market } \
&\text { Basis } & \text { Value } \
\text { Stock in Scarlet Corporation }&\$ 2,000,000 & \$ 1,000,000 \
\text { Apartment building }&3,000,000 & 6,000,000
\end{array}$$ Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in these properties is:

Quizplus · Accepted Answer

In a community property state, when one spouse dies, the surviving spouse's basis in the community property is stepped up (or down) to the fair market value (FMV) at the date of death. Therefore, Liam's new basis in the stock would be $1,000,000 (the FMV at Isla's death) and $6,000,000 for the apartment building, totaling $7,000,000.

Liam and Isla Are Husband and Wife and Have Always