Understanding Property Ownership in Nevada: Joint Tenancy vs. Community Property
When you own property with another person, especially a spouse, how you “title” (how the deed lists ownership) that property can have big effects, particularly when one owner dies. In Nevada, two common ways married couples hold property are “Joint Tenancy with Right of Survivorship” and “Community Property with Right of Survivorship.”
Joint Tenancy with Right of Survivorship (JTWROS)
Imagine you and your spouse own a home as Joint Tenants with Right of Survivorship. This means you both own the property equally. A key feature is the “right of survivorship,” which means if one owner dies, their share automatically passes to the surviving owner without needing to go through a lengthy probate court process.
However, there’s a significant tax detail to consider. When the first spouse dies, only their 50% share of the property gets a “step-up in basis”. A step-up in basis essentially resets the value of that 50% share to its current market value (valued on the date of death), which can help reduce capital gains taxes if the property is later sold. But with JTWROS, the surviving spouse’s original 50% share does not get this step-up, potentially leaving them with a tax exposure on that portion if the property has appreciated significantly. (Which is something we need to look out for in Northern Nevada). Another point to note is that one joint tenant can sometimes “break” the tenancy, which can lead to complications. What is meant by “break” the tenancy is that one spouse can sell off their portion of the property without notice and or agreement from the other.
Community Property with Right of Survivorship (CPWROS)
Now, let’s look at “Community Property with Right of Survivorship.” This option is specifically for married couples in community property states like Nevada. Like JTWROS, it includes the right of survivorship, so the property automatically transfers to the surviving spouse upon death, avoiding probate.
The major advantage of CPWROS lies in its tax treatment. When the first spouse dies, the entire property (100% of it) receives a step-up in basis to its fair market value at the time of death. This means that if the property has gone up in value over the years, the surviving spouse can sell it with significantly reduced, or even zero, capital gains tax liability. This is a huge benefit compared to JTWROS. Furthermore, with community property, both spouses typically need to agree to sell or make major changes to the property, offering more security.
Why the Difference Matters
The main takeaway is the “step-up in basis” and its impact on capital gains taxes. For married couples in Nevada, holding property as Community Property with Right of Survivorship is generally the preferred method because it offers a 100% step-up in basis upon the first death, potentially saving a lot of money in taxes down the road .
When deciding how to title your property, it’s always best to consult with a legal professional who can help you understand the specific implications for your situation and ensure your assets are protected.
Travis Clark, Esq.
