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Step Up Basis (Real Estate) Question
Old 07-14-2017, 11:19 AM   #1
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Step Up Basis (Real Estate) Question

I understand the general rules of an inherited property when it comes to the stepped up basis. However, does this rule apply if the home is held as joint tenants w/ rights to survivorship? I don't think that it does, but wanted to see what the consensus is with the group.

Example: "A" owns home in fee simple. In the year 2000, "A" does a quit claim deed to add "B" to the deed; it's now owned by "A" and "B" (they are not married). In 2020, "A" dies. If "B" sells the house, will "B" be responsible for the capital gains from 2000 to 2020 ("B" never lived in the home and is unable to claim it as a primary residence)?

I ask this question because my Dad wants to add me to the deed of his home. We would not file it (to avoid the hassle of re-accomplishing the exemption paperwork along w/ a couple other reasons) unless he dies. Doing this would remove the home from probate, however, I think I would have to pay any capital gains on the property from the QC Deed until his death.

Note: In Georgia, a deed is NOT required to be filed to be valid; that's not a variable in this question.
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Old 07-14-2017, 11:47 AM   #2
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Interesting question.... I will throw out a guess and another comment...


You getting half the house without paying anything means it is a gift to you... did you file a gift tax return? It is still required even if no tax is due...

FWIR, you get the basis at the gift amount (but I could be wrong on anything in this post unless I do research which I do not plan to do)... your half does not get a step up in basis..


Your dad's half should get a step up in basis... so your new basis is the gift part and the death part combined...


Now lets see if I am correct....
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Old 07-14-2017, 11:54 AM   #3
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Interesting question.... I will throw out a guess and another comment...


You getting half the house without paying anything means it is a gift to you... did you file a gift tax return? It is still required even if no tax is due...

FWIR, you get the basis at the gift amount (but I could be wrong on anything in this post unless I do research which I do not plan to do)... your half does not get a step up in basis..


Your dad's half should get a step up in basis... so your new basis is the gift part and the death part combined...


Now lets see if I am correct....
You know, I didn't think about the "gift" aspect of it. I didn't realize that this might be a requirement. QCDs are used often to add people (or remove them) and I haven't talked to anyone who has treated it as a gift. I am not saying it's right, I just don't recall anyone doing this.
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Old 07-14-2017, 11:58 AM   #4
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Im sure this forum has experienced people dealing with this subject. And i highly value all constructive/funny comments., That being said, in this case i would have a bit more confidence in an answer I got from a highly experienced real estate attorney in my state. Further i would like to get his answer face to face to gauge my "gut" feeling on his expertise in this particular problem.
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Old 07-14-2017, 12:09 PM   #5
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Im sure this forum has experienced people dealing with this subject. And i highly value all constructive/funny comments., That being said, in this case i would have a bit more confidence in an answer I got from a highly experienced real estate attorney in my state. Further i would like to get his answer face to face to gauge my "gut" feeling on his expertise in this particular problem.
No doubt. I have several attorneys that I could pose this question to but sometimes I think a subject *might* be useful to other users, so I will post the question here to see what others think. Also, I am about to start the 3rd year of law school, so I am my worst own enemy when it comes to stuff like this.
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Old 07-14-2017, 03:44 PM   #6
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You can set up a deed so that the house aromatically transfers to you on death. It is a Transfer On Death deed, or something like that. Not all states allow it, but most do. It would accomplish what you want.

You can put it into a non-revokeable trust, and have you as the trustee. That may also work.

You can buy the property, at any value you want, and have the loan decreased by the gift amount each year. Your wife and kids could get the same gift and pay down the mortgage. Buy it for $100K more than the current basis, and have the loan forgiven each year buy a lot. Almost $60K loan forgiveness each year if you have a wife and 2 kids.

There are many ways to get around gift reporting as it is so full of holes.

The problem comes if he goes into a nursing home, and you want to protect assets.

There are many ways, it depends on what your objective is.
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Old 07-14-2017, 04:04 PM   #7
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I think Senators post is also an important one...

It really does matter what you are trying to accomplish in how you want to structure it...


Decided to do a bit of research... quitclaim is a taxable event... probably not taxes due, but a return is due.... many articles out there from many law firms....

Gift Tax Implications of Putting Children on a Quitclaim Deed | Home Guides | SF Gate

https://www.elderlawanswers.com/dont...read-this-8826

https://rodgers-associates.com/newsl...ld-homes-deed/



Not sure about the basis of the gifted part... some of these articles seem to say that the original basis is passed through... if that is the case then when it comes time to sell you have a BIG cap gain tax.... because it is not your primary residence...
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Old 07-14-2017, 04:10 PM   #8
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Originally Posted by ExFlyBoy5 View Post
I understand the general rules of an inherited property when it comes to the stepped up basis. However, does this rule apply if the home is held as joint tenants w/ rights to survivorship? I don't think that it does, but wanted to see what the consensus is with the group.

Example: "A" owns home in fee simple. In the year 2000, "A" does a quit claim deed to add "B" to the deed; it's now owned by "A" and "B" (they are not married). In 2020, "A" dies. If "B" sells the house, will "B" be responsible for the capital gains from 2000 to 2020 ("B" never lived in the home and is unable to claim it as a primary residence)?

I ask this question because my Dad wants to add me to the deed of his home. We would not file it (to avoid the hassle of re-accomplishing the exemption paperwork along w/ a couple other reasons) unless he dies. Doing this would remove the home from probate, however, I think I would have to pay any capital gains on the property from the QC Deed until his death.

Note: In Georgia, a deed is NOT required to be filed to be valid; that's not a variable in this question.
Not according to Lasser's. MIL passed a couple of months ago and surprise, surprise, she put DH's name on title as co-owner years ago (w/o advising us!) prior to filing a beneficiary deed. Needless to say, we had to get attorney involved and unfortunately, co-ownership applies, as well as the subsequent beneficiary deed as we were able to avoid probate (no trust). My guess is the attorney fu big time as we can't imagine her doing this on her own w/o getting her attorney to file the papers. Suspect they just forgot about the joint ownership when they filed the beneficiary deed.

Spent some time yesterday reviewing Lasser's and as we expected, he'll receive stepped up basis on her half, but not on his "half." We'll let the tax man figure it out next April.
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Old 07-14-2017, 05:12 PM   #9
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Not according to Lasser's. MIL passed a couple of months ago and surprise, surprise, she put DH's name on title as co-owner years ago (w/o advising us!) prior to filing a beneficiary deed. Needless to say, we had to get attorney involved and unfortunately, co-ownership applies, as well as the subsequent beneficiary deed as we were able to avoid probate (no trust). My guess is the attorney fu big time as we can't imagine her doing this on her own w/o getting her attorney to file the papers. Suspect they just forgot about the joint ownership when they filed the beneficiary deed.

Spent some time yesterday reviewing Lasser's and as we expected, he'll receive stepped up basis on her half, but not on his "half." We'll let the tax man figure it out next April.
Note that gifts between spouses are not subject to gift tax if both are US citizens. With others gift form is due. If the gift plus other assets are less than 5.4 million or 10.8 if married the gift tax is not a real issue. (since the gifts are added to the other parts of the estate to see if tax is due)
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Old 07-14-2017, 06:03 PM   #10
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Not sure, but I would assume that the real estate would receive a step-up for 1/2 of the value upon your father's death. Your half would not be stepped up and it should retain the original cost basis as was with your father, assuming it is worth more than the original basis at the time of the gift, and assuming no gift tax was paid - as previously noted, it would be a gift to you. As long as your father doesn't have an estate tax issue, the fact that it's a gift may not be of much consequence, but technically a gift tax return (709) should be filed. Also as noted, there are ways to reduce the gift value, but this would only be something to consider if there are tax issues.

Speak to an accountant or estate planning attorney for a "real" answer.
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Old 07-14-2017, 07:06 PM   #11
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In the example you give, there would be a full step up in the basis on the father's death.
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Old 07-14-2017, 07:18 PM   #12
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I now concur with Gill: I believe my example is only applicable in with married joint owners in a non-community property state. I also believe the total value of the home would be included in your father's estate, assuming he dies first, thus allowing for the 100% step-up.
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Old 07-14-2017, 07:21 PM   #13
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That's correct. If joint owners are married, half would be stepped up. In OP's example, 100% is stepped up because included in estate of decedent.
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Old 07-14-2017, 08:47 PM   #14
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Note that gifts between spouses are not subject to gift tax if both are US citizens. With others gift form is due. If the gift plus other assets are less than 5.4 million or 10.8 if married the gift tax is not a real issue. (since the gifts are added to the other parts of the estate to see if tax is due)
Not an issue of gift tax or between spouses. DH is co-owner of MIL's property and and as such, will not receive stepped up basis of 'his portion'. We don't know how this will be treated tax wise as we were unaware of the addition of his name to the deed. This was done some time after her purchase of the property and prior to her filing a beneficiary deed.
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Old 07-14-2017, 08:58 PM   #15
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That's correct. If joint owners are married, half would be stepped up. In OP's example, 100% is stepped up because included in estate of decedent.
Gill
What if there is no estate as in DH's situation? All assets were titled POD, TOD, or beneficiary deed. No estate, no probate.

We had some refunds issued to the 'estate of the deceased' and were advised by bank that in order to open an estate checking account to receive the refunds, we would have to get an attorney to open an estate.
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Old 07-14-2017, 10:15 PM   #16
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That's correct. If joint owners are married, half would be stepped up. In OP's example, 100% is stepped up because included in estate of decedent.
Gill
Can you site the relevant IRS code?
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Old 07-14-2017, 10:56 PM   #17
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I was curious about this subject so I found some information from bogglehead. It sound like you get 100% step up value if you are non contributing spouse.

https://www.bogleheads.org/forum/viewtopic.php?t=63287
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Step Up Basis (Real Estate) Question
Old 07-15-2017, 04:45 AM   #18
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Step Up Basis (Real Estate) Question

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Can you site the relevant IRS code?


IRC Sec. 2040 and Sec. 1014.

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Old 07-15-2017, 05:08 AM   #19
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I was curious about this subject so I found some information from bogglehead. It sound like you get 100% step up value if you are non contributing spouse.

https://www.bogleheads.org/forum/viewtopic.php?t=63287


Interesting that the Boglehead's post you link is me posting under a different username. However, it doesn't support your proposition. When property is held jointly between spouses, half is included in the estate of the deceased spouse and only half receives the step up.
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Old 07-15-2017, 06:27 AM   #20
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What if there is no estate as in DH's situation? All assets were titled POD, TOD, or beneficiary deed. No estate, no probate.

We had some refunds issued to the 'estate of the deceased' and were advised by bank that in order to open an estate checking account to receive the refunds, we would have to get an attorney to open an estate.
Well, that is one problem. TOD/POD work well for avoiding probate. Estate tax is a different thing. I believe anything TOD/POD is still counted for estate tax filing. Now if the estate is small enough with the POD/TOD and everything else may not cause any tax to be owed.
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