Tax consequences of Joint Tenancy


G

G Burton

I live in California, and I have a question concerning joint tenancy.

My mother and father executed a quitclaim deed in 1996 in which they
established their home as a joint tenancy between the three of us (the two
of them and me). It was a surprise to me, and the intent was to avoid my
having to pay taxes upon their deaths. In 2005, my father died and we set
up a living trust wherein my mother and I are co-trustees. In Feb of 2006,
my mother's home was transferred to the trust by executing another quitclaim
deed.

My mother's health has since declined to the point where she needs to
live with my wife and I. It is very crowded here, and we have decided to
sell her house and use that money get a larger home that will accommodate
all of us.

An attorney told me that I am now half-owner of the house, so that when
the house is sold I will have to pay capitol gains on my half of the house.
The house is worth about $200,000. Was the attorney right?
 
Ad

Advertisements

P

Phil Marti

G Burton said:
My mother and father executed a quitclaim deed in 1996 in which they
established their home as a joint tenancy between the three of us (the two
of them and me). It was a surprise to me, and the intent was to avoid my
having to pay taxes upon their deaths.
Do-it-yourself estate planning strikes again. The effect was just the
opposite.
In 2005, my father died and we set up a living trust wherein my mother and
I are co-trustees.
At this point the two surviving tenants have equal bases calculated by
adding:

1. 1/3 of the basis at the time of the 1996 transfer
2. 1/3 of any capital improvements between 1996 and his death
3. 1/6 of the fair market value as of his death.
In Feb of 2006, my mother's home was transferred to the trust by executing
another quitclaim deed.

My mother's health has since declined to the point where she needs to
live with my wife and I. It is very crowded here, and we have decided to
sell her house and use that money get a larger home that will accommodate
all of us.

An attorney told me that I am now half-owner of the house, so that when
the house is sold I will have to pay capitol gains on my half of the
house. The house is worth about $200,000. Was the attorney right?
Yes, assuming you haven't lived there in the last 5 years. Assuming your
mother has been living there, she won't have any taxable income from the
sale. The only way around your taxable income would be for all of you to
move into her house for 2 years before selling it.

It's too late for you, but for the benefit of lurkers, if your parents had
left well enough alone in 1996 the sale would be tax-free. The time to seek
advice is before you act, not after.
 
G

G Burton

Thanks for your response!

If they had consulted me, I would have asked them to check it out with
an estate planner. They may have done that anyway. I will never know.

I would love to get a reference for what you said in the paragraph
below. Could you send me a link or some way to look it up in a standard
reference?
At this point the two surviving tenants have equal bases calculated by
adding:

1. 1/3 of the basis at the time of the 1996 transfer
2. 1/3 of any capital improvements between 1996 and his death
3. 1/6 of the fair market value as of his death.
I will go to a tax advisor, but I am gunshy and would like to check the
facts for myself. I made the mistake once of following the advice of a
highly-reputed tax advisor who told me something that didn't sound right. I
trusted him instead of my better jugement. His advice was wrong, and it
cost me a lot.
 
P

Phil Marti

G Burton said:
I would love to get a reference for what you said in the paragraph
below. Could you send me a link or some way to look it up in a standard
reference?
IRS Publication 551.
 
Ad

Advertisements


Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top