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:
Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in this property 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:
 Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in this property is:

Quizplus · Accepted Answer

In a community property state, the surviving spouse receives a full step-up in basis on the entire value of the community property upon the death of the first spouse. Therefore, Liam's income tax basis in the property would be stepped up to the fair market value of $7,000,000 at the time of Isla's death.

Liam and Isla Are Husband and Wife and Have Always