Rule Atlas
IRC § 1014: Property Titling and Basis: Step-Up Rules for Estate Planning
Under IRC § 1014 (CFP Board / IRS / SEC), property Titling and Basis: Step-Up Rules for Estate Planning establishes the authoritative rules tested on the CFP® Certification. Master how property ownership forms (JTWROS, TIC, Community Property) dictate tax basis at death. VoraPrep verifies every threshold, worked table, and practice question below against the current CFP® Certification blueprint.
The Pillars of Concurrent Property Ownership
| Feature | Joint Tenancy (JTWROS) | Tenancy in Common (TIC) | Tenancy by the Entirety (TBE) |
|---|---|---|---|
| Ownership Shares | Equal and undivided interest for all tenants. | Can be unequal (e.g., 60/40). | Equal and undivided interest for a married couple. |
| Transfer at Death | Automatic transfer to surviving joint tenant(s) by operation of law. Avoids probate. | Decedent's share passes to their heirs via their will. Goes through probate. | Automatic transfer to the surviving spouse. Avoids probate. |
| Creditor Access | Creditors of one tenant can typically sever the tenancy and seize that tenant's share. | Creditors can attach to the individual tenant's specific ownership share. | Creditors of only one spouse generally cannot attach the property. Strong protection. |
| Availability | Available in all states. | Available in all states. | Available only in about half the states and only for married couples. |
Maria and Ricardo, a married couple residing in California (a community property state), purchased an investment property in 2008 for $300,000. They held the property as community property. Ricardo passed away in 2026 when the property's fair market value (FMV) was $800,000. Maria inherited Ricardo's half of the property. Later, in 2027, Maria passed away, and at that time, the property's FMV was $1,000,000. Their son, Carlos, inherited the entire property. What is Carlos's basis in the inherited investment property?
Worked Example: The $500,000 Difference
Scenario. Let's revisit David and Sarah with their stock, originally purchased for $10,000 and worth $1,010,000 at David's death. We will calculate the surviving spouse Sarah's basis under two different scenarios.
- Scenario A: Titled as JTWROS (Assuming a Common Law State for Illustration)
- 1. Identify the decedent's portion: In a JTWROS, David is deemed to own 50% of the property. His half is worth $505,000 ($1,010,000 / 2). 2. Apply the step-up: David's 50% portion receives a step-up in basis to its FMV at his death. The basis of his half becomes $505,000. 3. Identify the survivor's portion: Sarah's original 50% portion does not receive a step-up. Her basis remains her share of the original cost, which is $5,000 ($10,000 / 2). 4. Calculate the new total basis: Sarah's new basis is the sum of the stepped-up portion and her original portion. Basis = $505,000 (David's stepped-up half) + $5,000 (Sarah's original half) = $510,000. 5. Calculate the gain on sale: If Sarah sells the stock for $1,010,000, her capital gain is $1,010,000 - $510,000 = $500,000. Therefore, Sarah faces a taxable gain of $500,000.
- Scenario B: Titled as Community Property
- 1. Identify the property status: In a community property state, assets acquired during the marriage are generally considered owned 100% by the marital community. 2. Apply the 'double step-up': The special rule for community property is that upon the death of one spouse, both halves of the community property receive a full step-up in basis to the FMV at the date of death. 3. Calculate the new total basis: The entire property's basis is stepped up to $1,010,000. 4. Calculate the gain on sale: If Sarah sells the stock for $1,010,000, her capital gain is $1,010,000 - $1,010,000 = $0. Therefore, Sarah's taxable gain is $0.
Common CFP® Certification Distractors on IRC § 1014
- 1To remember the difference in basis treatment, use this simple mnemonic:
- 2JTWROS: Think Reduced Step-up. Only the decedent's share gets the new basis.
- 3Community Property: Think Complete Pass-up. The entire property gets a new, higher basis.
- 4To master property ownership and basis for the CFP® exam, focus on these critical points:
- 5Titling Controls Disposition: JTWROS and TBE property passes automatically to the survivor, avoiding probate. TIC property passes according to the decedent's will and requires probate.
Frequently Asked Questions: IRC § 1014
What is the core rule under IRC § 1014 (Property Titling and Basis: Step-Up Rules for Estate Planning)?
Under IRC § 1014 (CFP Board / IRS / SEC), property Titling and Basis: Step-Up Rules for Estate Planning establishes the authoritative rules tested on the CFP® Certification. Master how property ownership forms (JTWROS, TIC, Community Property) dictate tax basis at death. VoraPrep verifies every threshold, worked table, and practice question below against the current CFP® Certification blueprint.
How is IRC § 1014 tested on the CFP® Certification?
To remember the difference in basis treatment, use this simple mnemonic: JTWROS: Think Reduced Step-up. Only the decedent's share gets the new basis.
Where can I practice CFP® Certification questions on Property Titling and Basis: Step-Up Rules for Estate Planning?
Test yourself instantly with the free playable CFP® Certification question on this page, or launch VoraPrep's full CFP® Certification adaptive question bank, interactive lessons, and 1:1 exam simulator at voraprep.com/cfp.