FAQ-About Buying A Home in Arizona

Should a Husband and Wife Own Their Home or Other Real Property as Community Property With Right of Survivorship?

By Christopher A. Combs

In 1995 the Arizona legislature authorized a husband and wife to hold title to their home (and other real property and even personal property such as stocks and bonds) as community property with right of survivorship ‘CPWROS”).

Prior to this1995 legislation a husband and wife either held title to their home as community property (“husband and wife”) or, most commonly, as joint tenants with right of survivorship (“JTWROS”). Community property had the tax advantage of a step-up in basis of both halves of the home when the surviving spouse sold the home, but had the disadvantage of requiring probate.  JTWROS had the tax disadvantage of a step-up in basis of only the deceased spouse’s one-half interest in the home, but had the major advantage of transferring title to the home to the surviving spouse without any requirement of probate. The purpose of the 1995 legislation authorizing CPWROS was to have the “best of both worlds,” namely, after the death of the first spouse a step-up in basis of both halves of the home, but without probate.

The following simplified example will illustrate the importance of a step-up in basis of both halves of the home. A husband and wife buy a home for $40,000 (each has a basis of $20,000). Ten years later the husband dies and the home is now worth $100,000. The Wife then sells the home for S100,000.

If the home is JTWROS property, only the deceased husband’s one-half interest will be deemed by the IRS to have a step-up in basis, and the wife will have a taxable gain of $30,000 ($100,000 sale price less the deceased husband’s 100% step-up in basis to $50,000 less wife’s original basis of $20,000).

If the home is CPWROS property, both halves’ will be deemed by the IRS to have a step-up in basis, and the wife will have no taxable gain ($100,000 sale price less deceased husband’s 100% step-up in basis to $50,000 less wife’s 100% step-up in basis to $50,000).

In addition to the tax advantage of owning real property as CPWROS, as opposed to JTWROS, CPWROS real property can only be sold or mortgaged with the consent of both the husband and the wife. JTWROS real property can be sold or mortgaged by either spouse without the consent or even the knowledge of the other spouse.

If a husband and wife want to transfer the title to a home or other real property from JTWROS to CPWROS, they should contact the title insurance company that insured the title at the time of closing. The title insurance company will normally prepare the necessary transfer documentation for a minimal fee, generally less than $250.

Christopher A. Combs is a Certified Real Estate Specialist with the firm of Combs Law Group, P.C., 2200 E. Camelback Rd., Suite 221, Phoenix, Arizona 85016, 602-955-4712, www.combslawgroup.com. This article has been prepared by Combs Law Group, P.C. for informational purposes only and is not to be considered legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided is general and is not updated or revised for accuracy as statutory or case law changes following the date of first publication. Internet subscribers and online readers should not act upon this information without seeking professional counsel.

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