California Step-Up in Basis: Double Step-Up Tax Advantage

California's community property status provides one of the most significant tax advantages available in estate planning: the double step-up in basis. This benefit can eliminate capital gains taxes on appreciated property when one spouse dies, potentially saving families tens or hundreds of thousands of dollars.

Understanding how the step-up works helps California families make better decisions about property ownership and estate planning.

What Is Step-Up in Basis?

When you sell property, you pay capital gains tax on the difference between your selling price and your "basis" (typically what you paid for it).

Example without step-up:

You buy stock for $10,000
You sell it for $100,000
Capital gain: $90,000
Tax owed: $18,000+ (at 20% federal rate)

When you inherit property, your basis "steps up" to the fair market value at the date of the decedent's death. This eliminates tax on appreciation that occurred during the decedent's lifetime.

Example with step-up:

Decedent bought stock for $10,000
Stock is worth $100,000 at death
You inherit it with a stepped-up basis of $100,000
You sell it for $100,000
Capital gain: $0
Tax owed: $0

The step-up is provided by Internal Revenue Code Section 1014.

The California Double Step-Up

In most states, when jointly owned property passes at death, only the decedent's share receives a step-up. The surviving owner's share keeps its original basis.

California is different. Under IRC Section 1014(b)(6), 100% of community property receives a stepped-up basis when either spouse dies. This is the "double step-up."

Why California Is Different

California is a community property state. Both spouses are considered to own 100% of community property together. When one dies, the entire property is included in that spouse's estate for step-up purposes, not just half.

The Tax Savings

Scenario	Original Basis	Value at Death	Stepped-Up Basis	Gain if Sold
Separate property state (joint tenancy)	$200,000	$1,000,000	$600,000	$400,000
California (community property)	$200,000	$1,000,000	$1,000,000	$0

In this example, the California family saves approximately $80,000 in federal capital gains tax (plus California state tax) by getting the double step-up.

Detailed Example

John and Mary, California residents, bought a home in 1990 for $200,000. By 2025, it is worth $1,200,000. John dies.

In a Non-Community Property State

If the home were held as joint tenants in a separate property state:

Mary's half: Original basis of $100,000
John's half: Steps up to $600,000
Total basis: $700,000

If Mary sells for $1,200,000:

Capital gain: $500,000
Federal tax (20%): $100,000
California tax (13.3%): $66,500
Total tax: $166,500

In California

Because the home is community property:

Mary's half: Steps up to $600,000
John's half: Steps up to $600,000
Total basis: $1,200,000

If Mary sells for $1,200,000:

Capital gain: $0
Federal tax: $0
California tax: $0
Total tax: $0

Tax savings: $166,500

Which Property Qualifies

Community Property

Property acquired during marriage using community funds (wages, salary, business income) qualifies for the double step-up:

Primary residence
Investment properties bought during marriage
Stocks and investment accounts funded during marriage
Business interests developed during marriage

Quasi-Community Property

Property that would have been community property if acquired in California, but was acquired while living in another state, also qualifies. If you moved to California from Texas and brought appreciated assets from your Texas marriage, those assets get the double step-up treatment.

What Does NOT Qualify

Separate Property Property owned before marriage, or received by gift or inheritance during marriage, is separate property. Only the decedent's share (if any) receives a step-up.

Joint Tenancy Property held in joint tenancy (not community property) receives only a single step-up on the decedent's share. This is why converting joint tenancy to community property can provide tax benefits.

Documentation Requirements

To claim the double step-up, you need documentation showing:

1. Community Property Character

Evidence that the property was community property:

Marriage certificate
Date of acquisition (during marriage)
Source of funds (community income)
Property deed or title showing community property ownership

2. Fair Market Value at Death

Appraisal or valuation showing property value at the date of death:

Real estate appraisal
Brokerage statements
Probate inventory
Professional valuations

3. Records to Keep

Maintain these records:

Death certificate
Property valuations at death
Documentation of community property character
Original purchase documents (to prove appreciation)

Converting Joint Tenancy to Community Property

Many California couples hold property as joint tenants because that is what was on the standard deed form. Converting to community property (or community property with right of survivorship) preserves the double step-up benefit.

How to Convert

Execute and record a new deed changing the ownership from "joint tenants" to "community property" or "community property with right of survivorship."

Considerations

No gift tax consequences between spouses
Does not trigger property tax reassessment under Proposition 13
Consult an attorney to ensure proper documentation

When to Convert

Convert before the first spouse's death to maximize tax benefits. After death, the opportunity for the double step-up is lost.

Step-Up vs. Step-Down

The step-up works both ways. If property has declined in value since purchase, the basis steps down to the lower value at death.

Example:

Stock purchased for $100,000
Worth $50,000 at death
Heir's basis: $50,000

If the heir sells for $50,000, there is no loss to deduct. The built-in loss disappeared at death.

Planning tip: If property has a built-in loss, it may be better to sell before death to realize the loss for tax purposes.

Impact on Estate Planning

Trust Planning

Property transferred to a revocable living trust retains its community property character. The double step-up still applies when the first spouse dies.

Irrevocable Trusts

Property transferred to an irrevocable trust more than three years before death may not receive a step-up. Careful planning is required.

Intentional Basis Planning

Some families strategically manage basis:

Hold appreciated assets until death (to get step-up)
Sell depreciated assets before death (to capture losses)
Ensure community property character is documented

Proposition 19 Interaction

California Proposition 19 (effective February 2021) changed property tax rules for inherited property. While the income tax step-up remains, property taxes may increase when heirs inherit.

For inherited primary residences, heirs must use the property as their own primary residence to retain the current property tax basis, and even then, increases may apply for properties worth more than $1 million over the assessed value.

This means the income tax benefits of the step-up remain, but property tax consequences should also be considered.

Learn more: Proposition 19 and Inherited Property

Frequently Asked Questions

Does California have a double step-up in basis?

Yes. Under IRC Section 1014(b)(6), both halves of community property receive a stepped-up basis when either spouse dies. This can eliminate capital gains taxes on appreciated property.

Does joint tenancy get a double step-up in California?

No. Joint tenancy property receives only a single step-up on the decedent's share. To get the double step-up, property must be held as community property.

What is the difference between step-up in basis and double step-up?

A regular step-up adjusts the basis of inherited property to fair market value at death. The double step-up, available only for community property, adjusts the basis of both halves, including the surviving spouse's share.

How do I prove property is community property for the step-up?

Document the date of acquisition, source of funds, and ownership records showing community property character. Keep marriage certificates, deeds, and financial records.

Does the step-up apply to all inherited property?

The step-up applies to most inherited property (real estate, stocks, etc.). IRAs and other retirement accounts do not receive a step-up in basis because they contain pre-tax dollars.

What if property was purchased before marriage?

Property purchased before marriage is separate property. Only the decedent's share receives a step-up. The surviving spouse's share (if any was acquired through transmutation or commingling) keeps its original basis.

Related Guides

Sources:

Internal Revenue Code Section 1014 (Basis of Property Acquired from a Decedent)
Internal Revenue Code Section 1014(b)(6) (Community Property)
IRS Publication 551 (Basis of Assets)
California Family Code Section 760 (Community Property)

Last Updated: January 2026. Tax rules are complex and change frequently. This guide provides general information. Consult with a tax professional or estate planning attorney for advice specific to your situation.