Livermore Real Estate - Live Long In A Peaceful Place

After looking over the manner in which 14 clients of mine obtained titles to their homes I was barely amazed to see that their titles are held as joint tenants, which means it might be held something like John and Mary Smith. These clients were informed by their real estate agent to go with joint tenancy as this way it is simpler to manage the transfer of the property whenever one spouse passes away. Put simply, the surviving joint tenant receives the decedent spouse's interest the instant the spouse passes away. It means that there is no probate, no trust administration or other estate planning arrangement involved in this process. Instead, by operation of law, the interest automatically passes from one spouse to the other immediately upon death. For example in the case above when John Smith's dies, Mary Smith would simply present an affidavit of death of John Smith to the probate court and John Smith's name would be taken off title, therefore Mary Smith becomes the sole owner of the residence.

While your realtor might think it is a good idea to hold property as joint tenants, a California attorney would suggest otherwise, because there are significant tax reasons for holding property in a form apart from joint tenancy. The following illustration offers an example of the problem involved with holding property in joint tenancy.

John and Mary Smith, a married couple, purchased a house in 1980 for $100,000 in Livermore, CA. They took title as John Smith and Mary Smith as joint tenants. In 2005, John Smith passed away and so Mary Smith became sole owner of the property since she was the surviving joint tenant. In 2005, the value of the home was $1,000,000. Additionally in 2005, Mary decided to sell the home for $1,000,000.

The tax Mary needed to pay for the sale of the home is referred to as capital gains tax. Capital gains tax is added on the gain of an item by subtracting the cost basis of the item when it had been originally purchased from the sale price of the item. In particular here, the cost basis of an inherited asset is the value on the date of death.

In this instance, Mary obtained the home in 1980 for $100,000. Then in 2005, Mary acquired the other half of the property for $500,000 via the death of her spouse John. Therefore, her cost basis would be $550,000, as you could add basis, and when she sold the home for $1,000,000, her gain would be $450,000. In 2009, capital gains tax is roughly 25% (15% federal/9.8% California)

If the title to the residence had been held as community property Mary would have had a substantial tax savings. For instance, upon the death of John, Mary would be eligible to receive a new cost basis for the complete worth of the home, $1,000,000, rather than the 50% as in the case of the home being held in joint tenancy. Thus, Mary wouldn't have any capital gains tax becuase her inherited cost basis would be $1,000,000 and the selling price was also $1,000,000. In summary, Mary could have saved a great deal in capital gains tax if she and Joe titled their property as community property as opposed to joint tenancy.

Last but not least, the principal advantage of joint tenancy, little post-death administration, can be replicated if title is held as "community property with right of survivorship." Even so, the IRS has yet to rule if holding title as community property with right of survivorship entitles the surviving spouse to acquire the property with a new cost basis for the entire property, rather than 50%. Irrespective, holding marital real estate as "joint tenancy" is not recommended in most scenarios.

I'm working in a Livermore Real Estate agency and my primary goal is to reach the maximum in my job. As a Livermore Real Estate agent I have several years knowledge in real estate investments.