Which type of ownership does NOT receive a stepped-up tax basis upon the owner's death?

In the context of tax law, the concept of a "stepped-up basis" refers to the adjustment of the value of an inherited asset to its fair market value at the time of the owner's death. This adjustment can significantly affect the calculation of capital gains tax if the property is sold after inheritance.

Tenancy in common is a form of ownership where each co-owner has an undivided interest in the property, but their interests are distinct and separate from one another. Upon the death of a tenant in common, their share does not automatically transfer to the surviving co-tenants but instead goes to their heirs or beneficiaries according to their will or state inheritance laws. This transfer does not provide the surviving owners with a stepped-up basis for the deceased co-owner’s share, which can lead to higher capital gains taxes if the property is later sold.

In contrast, both community property and community property with the right of survivorship, as well as joint tenancy with the right of survivorship, allow the surviving owner(s) to receive a stepped-up basis for the entire property upon the death of one co-owner. This is because the interest automatically transfers to the survivor, thereby resetting the basis to the fair market value at the date of the deceased owner’s death.