Community property and buying a home in Idaho

What counts as community or separate property?

The Idaho statutes start from a simple split:

• Separate property (§ 32-903): property either spouse owned before marriage, property acquired by gift, bequest, devise or descent, and property bought with the proceeds of separate property.
• Community property (§ 32-906): “all other property acquired after marriage by either husband or wife.”

Two details matter for homebuyers. First, § 32-906 also makes the income of both separate and community property, including rents and profits, community property, unless a deed or a written agreement of both spouses says otherwise. Second, the statute’s test is when the property was acquired, not whose name appears on the deed. Publication 555 adds that property that cannot be identified as separate is treated as community property.

A home bought with separate funds, such as money owned before marriage or an inheritance, can stay separate. If you mix separate and community money, Publication 555 treats the part bought with separate funds as separate; keep records.

Who must sign when you buy, sell or borrow?

Section 32-912 gives either spouse the right to manage community property and bind it by contract, with one exception that applies to your home: neither spouse may sell, convey or encumber community real estate unless the other joins in the sale agreement, the deed or the instrument. A mortgage or deed of trust encumbers the real estate, so § 32-912 also applies when you borrow against the home.

There are two statutory ways around this:

• Power of attorney. A spouse may give the other, by express power of attorney, the complete power to sell, convey or encumber community property.
• Transfers between spouses. Under § 32-906(2), property one spouse conveys to the other is presumed to be the grantee’s sole and separate estate, and only the grantor needs to sign. The income from that property stays community unless the deed says otherwise.

Idaho Housing says it allows “sole and separate” transactions for FHA, VA and conventional loans, following agency guidelines, and counts the income of all spouses, borrowing or not, when it tests eligibility for its tax-exempt first loan. Ask your lender how it treats a spouse who is not on the loan.

How can spouses hold title?

The statutes lead to a few practical options. The table summarizes what the cited sections say.

Spouses can also set the rules in advance. A premarital agreement must be in writing, signed by both parties and acknowledged as conveyances of land are (§ 32-922), and may cover ownership, management and what happens at separation, divorce or death (§ 32-923).

What happens at divorce or death?

Divorce. Under § 32-712, the court assigns community property and the homestead “in such proportions as the court… deems just.” Unless there are compelling reasons otherwise, the law calls for a substantially equal division in value, considering debts. Factors that can change this include the length of the marriage, each spouse’s health, income and needs, and any antenuptial agreement. Publication 555 adds that dividing community property in a divorce does not by itself produce a gain or loss for tax purposes.

Death. If there is no will, § 15-2-102 passes the decedent’s one-half of the community property to the surviving spouse. With a survivorship estate under § 15-6-401, the home belongs to the surviving spouse by the deed itself.

A worked example: the tax basis after a death

This is an illustration, not a prediction. A couple buys a home for $300,000 using community funds. Years later one spouse dies and the home is worth $500,000. Publication 555 says that, when at least half of the community property’s value is included in the deceased spouse’s estate, the total fair market value generally becomes the basis of the whole property. The survivor’s basis would be about $500,000 instead of $300,000, which can reduce taxable gain on a later sale. Our guide to capital gains on a home sale explains the other rules. For your situation, ask a tax professional.

Where this fits in your purchase

Both spouses should read the purchase contract and the deed before closing, since the title and the signatures are set at that point. For the price, programs and local numbers, see home prices in Idaho and Boise, first-time buyer programs in Idaho and buying a home in Boise. Our real estate attorney page for Idaho covers who handles a closing. An attorney can tell you which form of title fits your situation.