Question 1

A married couple lives in a community property state. They purchased stock for $100,000 using community funds. When the first spouse dies, the stock is worth $500,000. The surviving spouse sells the stock shortly after for $510,000. What is the surviving spouse's capital gain?

Accepted Answer

1. Identify Property Type: Community Property.
2. Identify Step-up Rule: IRC §1014(b)(6) provides a full step-up in basis for BOTH halves of community property upon the death of the first spouse.
3. New Basis: $500,000 (FMV at death).
4. Calculate Gain: Sale ($510,000) - Basis ($500,000) = $10,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying common law rules where only the decedent's half gets a step-up.

A married couple lives in a community property state. They purchased stock for $100,000 using community funds. When the first spouse dies, the stock is worth $500,000. The surviving spouse sells the stock shortly after for $510,000. What is the surviving spouse's capital gain?

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