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How Do You Hold Title to Your House?
by Jacqueline Skay
How do you hold title to your house? If you are married, unless you own your home in trust, chances are you hold title as Joint Tenants with Right of Survivorship. There is an another way for married couples to take title to real property in California.
The law allows spouses to take title as Community Property with Right of Survivorship (Civil Code section 682.1). This form of taking title addresses an income tax problem which technically exists when spouses take title as Joint Tenants With Right of Survivorship.
It works like this: When you buy a piece of property (your residence, for instance), your purchase price plus the cost of improvements becomes your "basis" in the property. When you sell the property, you are taxed on the amount the property appreciated, minus your basis.
If you never sell the property during your lifetime, when you die your heirs receive a "step-up" in basis to the fair market value of the property on the date of your death. When your heirs sell the property, they are taxed only on the gain in value subsequent to your death.
When a married couple owns property as Joint Tenancy With Right of Survivorship, the estate of the first spouse to die receives a step-up in basis only on the one half of the property belonging to the first spouse to die (Internal Revenue Code section 1014(b)(6)). On the other hand, property owned as community property receives a step-up in basis at the death of the first spouse on both halves of the property.
In California, during lifetime, joint tenancy property held by spouses is presumed community property. There is also case law indicating that in a community property state, such as California, the surviving spouse may argue that the property was held in joint tenancy for convenience only, with the true character of the property and the true intent of the parties being that the property was community property.
Perhaps partially for these reasons, the Internal Revenue Service, rarely, if ever, made an issue of joint tenancy property receipt of a full step up in basis on the death of a first joint tenancy spouse to die.
For homeowners in California, a living trust is usually the preferred form of property ownership. However, even for couples with a living trust, occasionally there is a need to temporarily transfer ownership from the trust (such as during a refinance). When those situations occur, for married couples it is best to remember the Community Property With Right of Survivorship option, instead of automatically reverting to the old Joint Tenancy.
Obviously, this option does not exist for unmarried persons. If you are an unmarried property owner holding title with someone else as joint tenants, talk to your legal and financial advisors about the advantages of a living trust.
by Jacqueline Skay
How do you hold title to your house? If you are married, unless you own your home in trust, chances are you hold title as Joint Tenants with Right of Survivorship. There is an another way for married couples to take title to real property in California.
The law allows spouses to take title as Community Property with Right of Survivorship (Civil Code section 682.1). This form of taking title addresses an income tax problem which technically exists when spouses take title as Joint Tenants With Right of Survivorship.
It works like this: When you buy a piece of property (your residence, for instance), your purchase price plus the cost of improvements becomes your "basis" in the property. When you sell the property, you are taxed on the amount the property appreciated, minus your basis.
If you never sell the property during your lifetime, when you die your heirs receive a "step-up" in basis to the fair market value of the property on the date of your death. When your heirs sell the property, they are taxed only on the gain in value subsequent to your death.
When a married couple owns property as Joint Tenancy With Right of Survivorship, the estate of the first spouse to die receives a step-up in basis only on the one half of the property belonging to the first spouse to die (Internal Revenue Code section 1014(b)(6)). On the other hand, property owned as community property receives a step-up in basis at the death of the first spouse on both halves of the property.
In California, during lifetime, joint tenancy property held by spouses is presumed community property. There is also case law indicating that in a community property state, such as California, the surviving spouse may argue that the property was held in joint tenancy for convenience only, with the true character of the property and the true intent of the parties being that the property was community property.
Perhaps partially for these reasons, the Internal Revenue Service, rarely, if ever, made an issue of joint tenancy property receipt of a full step up in basis on the death of a first joint tenancy spouse to die.
For homeowners in California, a living trust is usually the preferred form of property ownership. However, even for couples with a living trust, occasionally there is a need to temporarily transfer ownership from the trust (such as during a refinance). When those situations occur, for married couples it is best to remember the Community Property With Right of Survivorship option, instead of automatically reverting to the old Joint Tenancy.
Obviously, this option does not exist for unmarried persons. If you are an unmarried property owner holding title with someone else as joint tenants, talk to your legal and financial advisors about the advantages of a living trust.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.
Copyright 2023 © by Jacqueline M. Skay. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.
Copyright 2023 © by Jacqueline M. Skay. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.