Taking title to real property in California as "JOINT TENANTS" or as "COMMUNITY PROPERTY"

The manner in which a buyer takes title to a home or real property in California can have many ramifications.  You should seek advice from a certified public accountant or legal counsel before you make this decision.

JOINT TENANCY

When title is taken as joint tenants, and one of the tenants (wife or husband or partner) die, the property transfers to the surviving tenant without passing through probate.  The form Affidavit of Death of Joint Tenant is filed along with an original death certificate with the county assessor.  The filing of this affidavit may create a reassessment of the property valuation and generate a supplemental property tax bill, as the county assessor considers this to be a change of ownership.

For Federal Income Taxes:  If the property were held in joint tenancy, the income tax basis of the deceased spouses would be stepped up to the fair market value at date of his or her death.  The income tax basis of the surviving spouses's interest would remain at its original basis.

Example: Husband and wife purchased their home for $100,000 with each spouse's tax basis at $50,000. At the date of the husband's death, the property's fair market value was $200,000.  Husband's interest tax basis originally $50,000 is stepped up to the fair market value at his death, or $100,000.  Wife then has a property worth $200,000 with a federal tax basis of $150,000, her original $50,000 plus husband's $100,000.  If the property was sold for $200,000, there would be $50,000 of income taxable gain.

COMMUNITY PROPERTY & COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP

When title is taken as community poperty and one spouse dies, there is no right of survivorship.  The surviving spouse spouse does not automatically receive the property.  If the spouse died without a will, the property would pass to the surviving spouse by law of intestate succession. If there is a will, the deceased spouse's interest will be handled as outlined in the will.  In other words, each spouse owns 50% of the property, and each spouse can leave his or her 50% interest to the surviving swpouse or to any other person or entity.

When spouses specifically declare in the grant deed that they take title as "COMMUNITY PROPERTY" or "COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP" the property passes to the surviving spouse without passing through probate.  A form called an afficavdit death of community property spouse is filed with the county assessor along with an original death certificate.

The filing of this affidavitit may also create a reassessment of the property valuation and generate a supplemental property tax bill, as the county assessor considers this a change of ownership.

For Federal Taxes: If title is taken as community property or community property with right of survivorship, the entire property receives a stepped up income tax basis to the fair market value at the date of the spouse's death.

Example: Husband and wife purchased their home for $100,000 and a $200,000 value at the date of death. Wife's original $50,000 basis gets stepped up along the husband's original $50,000 basis to the current $200,000 fair market valeu. Wife this has a property worht $200,000 with a basis of $200,000. If the property is sold for $200,000, there would be no income taxable gain.

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 Harrison & Christi Long

Realtors & Advisors

Explore Group, Coldwell Banker Previews

949-854-7747

© Copyright 2007  – Rights reserved to Harrison & Christi Long

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The information contained herein is not the providing of legal services or services of an accountant.  If a person wants or needs such professional services, he or she must contact and retain counsel or a certified public accountant.  There are risks associated with the acquisition and ownership of real estate.