Example of Application of Community Property Rules

For example, Jim and Mary owned community property that had a cost basis of $100,000. When Jim died, his and Mary's community property had an fair market value ("FMV") of $130,000. At least half their community interest was includible in Jim's estate, or $65,000. Upon Jim's death, Ann's basis in half of the community property is $50,000 (1/2 the cost basis of $100,000). The basis of the other half of Jim's community property estate is also $50,000. This portion of the estate could be passed to Mary or to other heirs Jim designated in his estate plan documents. If the Will of a deceased spouse attempts to dispose of both halves of an item of community property, the survivor might have to go to court to prevent the transfer of the half interest the decedent had no right to give away.