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Q: Real Estate Tax Basis--Multiple Interests (Complicated) ( No Answer,   2 Comments )
Subject: Real Estate Tax Basis--Multiple Interests (Complicated)
Category: Business and Money > Accounting
Asked by: jamesboy-ga
List Price: $20.00
Posted: 28 Jun 2006 07:05 PDT
Expires: 28 Jul 2006 07:05 PDT
Question ID: 741717
Single Family Residence in California

--"A" buys a home in California in 1970 for $50,000
--"A" marries "B" in 2000 and adds "B" as a joint tenant with right of
survivorship.  The home is worth $100,000
--"A" and "B" add "C" to the tenancy in 2005 so now all three are
joint tenants with right of survivorship.  The house is worth $150,000
--"A" dies shortly after this so now only "B" and "C" are joint
tenants with right of survirorship.  The house is worth $150,000 when
"A" dies
--Six months later "B" changes the joint tenancy to tenants in common.
 So now "B" and "C" are 50% owners TIC
--"C" wants "B" to buy out "C" or sell the house.  The house can be
sold for $200,000.  The sale date would be less than one year after
"C" became an owner.

What happened to "A"s basis in the property when "A" died?
What is the basis of "B" and "C" in the property if sold?
How much capital gain will "B" and "C" have if the property is sold?
Do "B" and "C" pay ST or LT capital gain upon sale?
Does "C" have a capital gain if "B" just writes a check to "C" for
their interest to buy "C" out? If so LT or ST?
There is no answer at this time.

Subject: Re: Real Estate Tax Basis--Multiple Interests (Complicated)
From: markvmd-ga on 28 Jun 2006 08:31 PDT
Gains are moot as you have a $250K exemption, assuming the property is
primary residence for two of the five years prior to the sale.
Subject: Re: Real Estate Tax Basis--Multiple Interests (Complicated)
From: abezon-ga on 24 Jul 2006 22:54 PDT
A's basis: Dead people have no property, & thus, no basis. 

B&C's basis is the FMV when A died. ($75,000 each) When a joint tenant
with right of survivorship owner dies, the full value of the property
is included in his/her 'death tax' estate & the surviving owners get a
full step up in basis.

B&C's capital gain is $50,000 less costs of sale. The holding period
of inherited property is long term & the date of acquisition for
Schedule D purposes is "Inherited".

Whether B or C pay gains on the sale depends on whether they lived in
& owned the house for 2 of the 5 years prior to sale. If yes, B and/or
C can exclude up to $250,000 of gains each. If not, B or C might
qualify for a reduced exclusion depending on whether the sale is due
to some unforseen circumstance. See Pub. 523 for details.  In this scenario, it sounds
like B could exlcude gains but C could not.

If B buys out C, C has to report the sale on Schedule D. C would pay
long term capital gains taxes on any net profit that could not be
excluded. B would add the amount paid to C to his/her basis. How much
B pays is up to B & C to decide. Note that this could be a related
party transaction, which would prevent C from deducting any losses.

If B & C both sell, B can probably exclude the gains & C may or may
not get to exclude the gains. If B does not want to sell, C can force
a partition by sale by going to court.

T Meek
Enrolled Agent

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