ExpertMedium1 markMultiple Choice
CPA · Question 26 · Area 2: Financial Planning
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?
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?
Answer options:
A.
$205,000
B.
$10,000
C.
$410,000
D.
$255,000
How to approach this question
1. Identify Property Type: Community Property.<br/>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.<br/>3. New Basis: $500,000 (FMV at death).<br/>4. Calculate Gain: Sale ($510,000) - Basis ($500,000) = $10,000.
Full Answer
B.$10,000✓ Correct
B
Under IRC §1014(b)(6), if at least one-half of the community property is included in the decedent's gross estate, the entire community property interest (including the surviving spouse's share) receives a step-up in basis to FMV. Basis = $500,000. Gain = $510,000 - $500,000 = $10,000.
Common mistakes
Applying common law rules where only the decedent's half gets a step-up.
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