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Yes, at the death of the first spouse, community property steps up in basis, not 1/2 of it, but all of it. Only half of the community property is included in the decedent's estate, the other half belongs to the spouse. The 100% step up is different from joint property. In California, there is also "community property with right of ownership". This helps avoid probate.
This is correct, even in a community property state. You can refer to the IRS Publication 551 for more detailed information regarding this matter.