subject: Livermore Real Eastate - Getting the Most Out Of Your Property [print this page] Livermore Real Eastate - Getting the Most Out Of Your Property
After looking over the way in which 14 clients of mine obtained titles to their homes I was hardly surprised to see that their titles are held as joint tenants, which means it might be held something such as John and Mary Smith. These clients were informed by their realtor to go with joint tenancy as this way it's simpler to manage the transfer of the property whenever one spouse dies. Put simply, the surviving joint tenant receives the decedent spouse's interest the instant the spouse dies. It means that there's no probate, no trust administration or other estate planning arrangement involved in this process. Rather, by operation of law, the interest automatically moves from one spouse to the other immediately upon death. For example in the case above when John Smith's dies, Mary Smith would just present an affidavit of death of John Smith to the probate court and John Smith's name would be removed from title, thus Mary Smith becomes the sole owner of the home.Although your realtor might think it is a wise decision to hold property as joint tenants, a California attorney might advise otherwise, for there are significant tax reasons for holding property in a form apart from joint tenancy. The following illustration offers an example of the problem associated with holding property in joint tenancy.John and Mary Smith, a married couple, obtained a home in 1980 for $100,000 in Livermore, CA. They used title as John Smith and Mary Smith as joint tenants. In 2005, John Smith passed away therefore Mary Smith became sole owner of the property because she had been the surviving joint tenant. In 2005, the value of the home was $1,000,000. Furthermore in 2005, Mary agreed to sell the home for $1,000,000.The tax Mary needed to pay for the sale of the home is called capital gains tax. Capital gains tax is enforced on the gain of an item by subtracting the cost basis of the item when it had been originally obtained 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 case, Mary obtained the property in 1980 for $100,000. After that in 2005, Mary acquired the other half of the property for $500,000 through the death of her spouse John. Thus, her cost basis would be $550,000, since you could add basis, and when she sold the house for $1,000,000, her gain would be $450,000. In 2009, capital gains tax is roughly 25% (15% federal/9.8% California)Had the title to the residence been held as "community property" there'd have been considerable tax savings. For instance, on the death of John, Mary would be entitled to get a new cost basis for the entire price of the home, $1,000,000, instead of the 50% as with the case of the home being held in joint tenancy. Therefore, Mary wouldn't have any capital gains tax due because her inherited cost basis would be $1,000,000 and the selling price was also $1,000,000. In summary, Mary might have saved a lot in capital gains tax had she and Joe titled their property as community property rather than joint tenancy. Finally, the primary advantage of joint tenancy, little post-death administration, can be replicated if title is held as "community property with right of survivorship." However, the IRS has yet to rule if holding title as community property with right of survivorship allows the surviving spouse to acquire the property with a new cost basis for the entire property, rather than 50%. Regardless, holding marital real estate as "joint tenancy" isn't advisable in most cases.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.
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