Joint Tenancy vs. Community Property: How Account Titling Affects Your Taxes
In our latest video, Daniel Andersen, CFP®, and Trevor Stone, CFP®, EA, wealth advisors at Parkshore Wealth Management, explain why the way you title a jointly owned account (joint tenancy, community property, or a trust) can meaningfully change the tax basis when one spouse passes away. Watch the video below, or keep reading for the highlights.
When you open a joint checking account, buy a home with a spouse, or set up an investment account together, the title often defaults to the obvious choice: joint. It is the natural way to think about something you and your spouse own together. What many couples do not realize is that the title on the account (joint tenancy, community property, or a trust) can meaningfully change what happens, tax-wise, when one spouse passes away.
Joint Tenancy: A Step-Up, but Only on Half
In a joint tenancy, each spouse is treated as owning half the asset. Say you and your spouse buy a home for $500,000, so each of you is deemed to own $250,000 worth. Ten years later, the home has grown in value to $1 million, and one spouse passes away.
Only the deceased spouse’s half receives a step-up in basis to its current value. Their $250,000 share steps up to $500,000, half of the home’s current $1 million value. The surviving spouse’s original $250,000 basis stays exactly where it was. The new combined basis is $750,000, not the full $1 million, even though the whole home now belongs to the surviving spouse.
If the surviving spouse later sells the home, there is still a $250,000 taxable gain to account for. Under Section 121 of the tax code, a surviving spouse can generally exclude a certain amount of home-sale gain from tax, so in a case like this one, nothing may be owed. But scale the numbers up, a more expensive home or a faster-appreciating one, and that remaining basis gap could mean a significant tax bill.
Community Property or Trust: A Full Step-Up
Community property ownership works differently. Rather than each spouse owning half the asset, each is treated as owning the whole thing. Certain trust structures can achieve a similar result. In the same example of a $500,000 home now worth $1 million, the entire property (not just half) receives a step-up in basis to $1 million when the first spouse passes away. That is a $250,000 difference in basis compared with joint tenancy, which can mean a meaningfully smaller taxable gain, or none at all, if the property is later sold.
This Isn’t Just About Your House
The house is an easy example to follow, but the same principle applies to investment accounts. Whether you are titling a home, a brokerage account, or another jointly held asset, the choice between joint tenancy, community property, and a trust can carry the same kind of tax consequence for whatever you own together.
What About Non-Spousal Joint Owners?
The examples above involve married couples, but joint ownership is not limited to spouses. Siblings who co-own a property, a parent and adult child on the same account, and unmarried couples who buy a home together all face a version of the same titling question. Community property is a spousal rule (and in some states, it extends to registered domestic partners), so it is generally not available to these other kinds of joint owners. For them, the standard joint tenancy rules, with a step-up on only half the asset, typically apply, and a trust may be worth exploring as an alternative depending on the goal.
Why This Matters Most in Certain States
California is one of a handful of states (along with Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) that recognize community property. If you live in one of these states and default to joint tenancy out of habit, simply because it is the familiar option, you could be giving up a meaningful tax benefit without realizing it.
If you live outside a community property state, as our clients in Utah do, community property titling is generally not an available option. A properly structured trust can potentially achieve a similar full step-up in basis, but whether that applies to your situation depends on how the trust is drafted. That makes it worth reviewing with your financial advisor and an estate planning attorney rather than assuming it works the same way everywhere.
Get Your Titling Reviewed
How you title a jointly held account or property is not just paperwork. It is a decision that can shape the tax outcome for your surviving spouse, or your family, for years to come, and it is easy to set once and never revisit. If it has been a while since you looked at how your accounts and property are titled, now is a good time to check.
If you would like help reviewing how your accounts and property are titled, we invite you to schedule a conversation with an advisor at Parkshore Wealth Management.
This material was written in collaboration with artificial intelligence (Claude) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is an independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Daniel Andersen, CFP®, a member of NAPFA, the country’s leading professional association of fee-only financial advisors.