Dear Liz: I own a house with my longtime boyfriend. If one of us dies, how does the capital gains step-up affect the other? Answer: The deceased partner’s share of the home will get a new basis for tax purposes. The survivor’s share will not. Tax basis helps determine how much of a capital gains tax bill you might face when you sell a home or any other asset that gained value over time. Your basis is generally what you paid for the home, plus qualifying improvements. Inherited assets typically get a step-up in tax basis to their current market value, which means that no one has to pay taxes on the appreciation that occurred during the original owner’s lifetime. If you were married and living in a community property state such as California, then the entire house could get stepped up to the current market value when the first spouse dies. This is known as the double step up. But this applies only to married couples in community property states. Unmarried couples in community property states and couples in other states don’t get this benefit.

Dear Liz: I have retired early. I can keep my employer health insurance, thanks to COBRA, until I’m 64 years and 9 months. Do you have any suggestions on how to bridge that 3-month healthcare gap while waiting for Medicare? I am relatively healthy, but things happen. Answer: You shouldn’t be without health insurance for a single day, if you can possibly avoid it. Fortunately, the Affordable Care Act exchange can help you bridge the gap. Once you get the notice from your employer’s health insurer that your COBRA coverage is ending, you can start your application at HealthCare.gov.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWalle. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the ‘Contact’ form at asklizweston.com.

Understanding your home’s tax basis is crucial when navigating inheritance and property sales. The concept of a ‘step-up’ in basis, often associated with inherited assets, offers a significant advantage by eliminating capital gains taxes on appreciation that occurred during the original owner’s lifetime. This mechanism is particularly beneficial for individuals inheriting assets, allowing them to avoid tax liabilities on gains realized before their passing. However, the application of this step-up can vary considerably depending on the marital status of the deceased owner. Specifically, unmarried individuals residing in community property states are notably excluded from receiving the full double step-up benefit that is typically afforded to married couples within those states. This distinction underscores the importance of considering state laws and family structures when determining the tax implications of property ownership and inheritance. The capital gains tax on a home is generally calculated as the difference between the sale price and your adjusted basis. Your basis includes the original purchase price, plus any improvements you’ve made to the property – these are considered capital improvements that increase the home’s value. It’s essential to accurately track your basis to minimize your tax burden when selling your home. Furthermore, understanding how your basis is calculated can help you plan for future sales and optimize your financial strategy. The step-up in basis is a powerful tool, but its application hinges on specific circumstances, making it imperative to seek professional advice to ensure compliance and maximize its benefits. The process of determining and maintaining your home’s tax basis is a key component of sound financial planning, especially when considering estate planning and eventual property sales. Careful attention to detail and a thorough understanding of relevant tax regulations are vital to achieving favorable outcomes. The double step-up offered to married couples in community property states, where the entire house can be stepped up to current market value upon the first spouse’s death, represents a significant advantage. However, this benefit is not available to unmarried couples or those in states that don’t recognize community property. Therefore, it’s crucial to be aware of your state’s laws and how they impact your tax liability. Maintaining accurate records of your home’s purchase price, improvements, and any other relevant expenses is essential for calculating your basis and minimizing your tax obligations. This proactive approach will ensure that you’re prepared for any future property sales and can make informed decisions about your financial future. The principle of a step-up in basis is a cornerstone of tax efficiency, particularly for homeowners. By understanding how it works and taking steps to maintain accurate records, you can significantly reduce your tax liability and preserve more of your wealth. The double step-up benefit in community property states highlights the importance of considering your marital status when planning for the future. Failing to account for these differences can lead to unexpected tax liabilities and financial challenges. Ultimately, a proactive approach to managing your home’s tax basis is essential for achieving long-term financial security. The step-up in basis represents a valuable tool for homeowners, but it’s only effective if you understand how it works and take the necessary steps to maximize its benefits. When navigating the complexities of property ownership and inheritance, it’s crucial to seek professional advice from a qualified tax advisor or financial planner. They can provide tailored guidance based on your individual circumstances and help you make informed decisions that align with your financial goals. The impact of the step-up in basis extends beyond the initial sale of a property; it can also influence estate planning decisions and ensure that your heirs inherit assets with a lower tax burden. This proactive approach to tax planning can significantly improve the financial well-being of your family for generations to come.