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Capital gains and step-up rules affect Louisiana couples differently because community property can qualify for a full step-up in basis when one spouse dies, which can greatly reduce taxable gain on a later sale. Couples who hold property outside of community property, such as in separate ownership, do not receive the same tax advantages and may face higher capital gains taxes.
Louisiana’s community property structure shapes how real estate, investments, and family-owned assets are valued after death. When you understand how basis rules work and how they interact with donations, trusts, and titling, you can make more informed decisions about when to sell, how to transfer property, and how to protect long-term value for your family.
How Step-Up in Basis Works Under Louisiana Community Property
Louisiana treats most assets acquired during marriage as community property. When one spouse passes away, community property generally receives a new basis equal to the fair market value on the date of death, as long as the deceased spouse’s share is included in their estate.
For example, if a couple bought a home for $200,000 and it is worth $400,000 at the first spouse’s death, the survivor receives a new basis of $400,000. Selling the home shortly after often results in little or no capital gains tax.
This full step-up is one of the strongest tax advantages available to married couples in Louisiana.
What Happens With Separate Ownership
The step-up is less favorable when property is not classified as community property.
Separate Property
Separate property also receives a step-up, but only on the portion owned by the deceased spouse. The surviving spouse does not receive any step-up on their own separate property.
Correct titling matters in Louisiana. Many couples benefit from confirming community property status before making long-term planning decisions.
Capital Gains Considerations for Louisiana Families
The step-up does not eliminate all future tax liability. It only resets the basis at the first spouse’s death.
Important considerations include:
- A sale soon after the step-up usually produces little to no gain.
- A sale years later may generate new gains because the stepped-up basis remains fixed at the date of death.
- Assets that are partly separate and partly community may require the valuation of each portion.
- Accurate fair market value at the time of death is key for calculating tax exposure.
We help couples review how property is classified so they understand potential tax outcomes before a sale.
Donations Use Carry-Over Basis in Louisiana
When you gift property to a child or another beneficiary during your lifetime, the tax benefits are different from inheritance.
Donated property receives a carry-over basis, meaning the recipient takes the same basis you had. If you purchased land for $80,000 and gift it to a child when it is worth $200,000, the child receives an $80,000 basis. When they sell it, they may face significant capital gains.
This difference often leads families to compare gifting strategies with inheritance planning, especially when property has appreciated.
Why Irrevocable Trusts May Lose Step-Up Benefits
Louisiana residents sometimes transfer property to irrevocable trusts for asset protection. However, these trusts do not always qualify for a step-up in basis at death.
When the grantor gives up ownership and control, the property may no longer be considered part of the grantor’s estate for tax purposes. As a result:
- Assets in an irrevocable trust often do not receive a new basis at death if they are not included in the grantor’s taxable estate.
- Beneficiaries may owe a higher capital gains tax when they sell the property.
- The structure of the trust determines whether the IRS treats the asset as owned by the grantor.
Louisiana usufruct and naked ownership arrangements can also affect basis, so it is important to review how property is titled before moving it into a trust.
Common Louisiana Scenarios
Here are a few examples that illustrate how these rules affect couples:
- Community property home. The survivor sells soon after the first spouse’s death and pays little or no capital gains.
- Property owned jointly that is otherwise not community property. Only half receives a step-up, which can produce significant gains when sold.
- Lifetime donation to a child. The child sells years later and owes tax based on the original cost, not the value at the time of the gift.
- Irrevocable trust asset. Beneficiaries sell property without any step-up and face a larger taxable gain.
These outcomes show why understanding Louisiana’s community property system is so important.
Plan with Clarity and the Right Guidance
The step-up in basis can offer meaningful tax advantages, but the benefits depend on how your property is classified. We will help you review ownership, evaluate capital gains exposure, and choose the planning tools that protect long-term value for your family.
Contact Kallio Law Firm, LLC to schedule a consultation.
