How is community property treated differently in the nine common law states versus the rest of the states in t

Question

How is community property treated differently in the nine common law states versus the rest of the states in the United States? What are some example?

Answer 1

Community property only exists in the CP states. There are 9 CP states. All the rest are common law.

Answer 2

When property is held as community property, each owner has an undivided interest in the property. The big advantage to holding community property is that upon the death of one of the owners, the survivor's share receives a full step-up in basis. This means that the tax basis is adjusted to the value of the property at the time of the decedent's death.

If you hold property as community property and it appreciates substantially, you can avoid a great deal of income tax.

The downside is the decedent's half will be includible in his or her estate and may be subject to estate tax. Another consequence is that if the property is not held in trust, the property will have to pass through probate. There is an expense and a loss of privacy associated with this process. However, in some states such as California and Arizona, there is a new form of community property ownership title called community property with right of survivorship. This gives the best of both worlds with the step-up in basis on death and the passing of the property directly to the survivor outside of probate.

Answer 3

A Salary = 42,000, Dividends = 0 B Salary = 42,000, Dividends = 0 Community property versus common law state have no bearing on tax return. Patricia has to report on income tax return what is hers, and Cliff has to report on income tax return what is his.