Updated July 29, 2026. Quick answer: Only half. IRC §2040(b)(1) provides that for a qualified joint interest — property held by spouses as tenants by the entirety, or as the only joint tenants with right of survivorship — “the value included in the gross estate … is one-half of the value.” Half in the estate means half a step-up, and the survivor keeps their original basis on the other half.
The same asset, the same marriage, two different answers
| Community property state | Common-law state | |
|---|---|---|
| Included in the gross estate | Decedent’s half | Half, per §2040(b)(1) |
| Decedent’s half gets new basis | Yes | Yes |
| Survivor’s half gets new basis | Yes — §1014(b)(6) deems it acquired from the decedent | No |
That single difference is the entire arbitrage, and it is why six common-law states have written statutes trying to import the result. Whether those statutes actually work is a genuinely open question, and the honest answer is less encouraging than the marketing.
What follows for a couple in a common-law state
The survivor’s half carries its original basis forward, so a highly appreciated position held jointly for decades leaves the survivor with an embedded gain that a community property couple would not have. That is worth knowing before assuming joint titling is automatically the simplest choice — it is simple, but it is not basis-neutral.
And in either case, the adjustment runs in both directions.
Sources
IRC §1014(a), (b)(6), (c) and (e); Treas. Reg. §1.1014-1(a) and §1.1014-2(a)(5); IRC §2040(b); IRC §691. State law as cited on each page from the state’s own codified statutes. The nine-state list is attributed to IRS Internal Revenue Manual 25.18.1.2.3 and Publication 555 rather than to fifty separate statutes. All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.