California domestic partners face different tax step‑up rules than married couples

California treats registered domestic partners like married couples for state tax purposes, granting them a double step‑up in basis when one partner dies. For federal taxes, however, the IRS does not recognize domestic partnerships as spouses, so only half of the property receives a step‑up in basis, leaving the other half at its original cost basis. This disparity can create a sizable capital‑gains tax liability on the portion that does not receive the federal step‑up. Additionally, the $500,000 home‑sale exclusion that applies to surviving spouses is not available to domestic partners, and the special provision allowing spouses to claim the full exclusion if the home is sold within two years of death does not extend to them. The result is that, while state taxes may reflect the full current market value of the home, federal taxes may still be owed on the appreciation of the half that lacks a step‑up.