Joint tenancy and community property are overlapping legal concepts that pretty much mean the same thing – at least during your lifetime. You and your spouse each own 50 percent of your home. The distinction between holding the property as joint tenants or as community property doesn't become important until one of you dies, and even then, it's a matter of taxation, not ownership.
If you live in one of the nine community property states – Wisconsin, Louisiana, Texas, Idaho, Washington, New Mexico, Arizona, Nevada or California – the law states that you and your spouse jointly own your property, no matter what the deed says, if you purchased it during your marriage with marital funds. Under these circumstances and in these states, you'd still own half the property even if the deed was in your spouse's sole name. Therefore, if you hold title as joint tenants so you each own half, the concept of community property is somewhat redundant. If ownership in the event of divorce is your only concern, there's no need to create a new deed to convert the property to community property, because it already is.
Community Property Deeds
Five of the community property states – California, Arizona, Wisconsin, Nevada and Texas – allow for special community property deeds with rights of survivorship. At first glance, this might seem like another repetition of concepts, because joint tenants already have rights of survivorship. With both deeds, if your spouse dies, you automatically inherit the entire property, and probate isn't necessary to change title. Therefore, if your chief concern is that your property passes seamlessly to the survivor if one of you dies, creating a new community property deed isn't necessary. Holding title as joint tenants with rights of survivorship already addresses this problem.
A community property deed in the community property states that recognize them is similar to holding title as tenants by the entirety in common law states. Ownership as tenants by the entirety is reserved for spouses, and it has certain tax advantages. Community property states don't recognize tenancy by the entirety, so your only similar option if you're concerned about capital gains issues is a special community property deed. If you hold title to your property as joint tenants and one of you dies, the survivor will probably pay more in capital gains if she decides to sell. The tax basis for her 50 percent share of the property remains the date of acquisition, while the tax basis for the deceased spouse's share is adjusted to his date of death. With a community property deed, the value of the entire property – both shares – is stepped up to the date of death, so the tax basis would be greater. The greater the tax basis, the less likely it is that taxable capital gains would result from an immediate sale.
Creating a New Deed
If you decide that you want a community property deed, it's a relatively simple process to transfer title. You'd simply create a new deed, transferring ownership from yourselves to yourselves, but the new deed would include the special community property language. This language isn't the same in all states, however, so have a professional review your deed to make sure it confirms to your state's laws and that it achieves what you want.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.