I just re-financed my house and added my son onto the deed/title, but he's not on the loan. I did this so that when I die, it will be easy for him to sell the house. Now he's telling me I should have left the house to him in a will and he wouldn't have to pay any capital gains tax. He says that with his name on the deed, he will have to pay the tax.Is he right?
He is "dead" right.
When he is a co-owner of the house, when you pass, the property is 100% his. All you have done is bypass the probate process, which is much less of a hassle in most cases that advertised by the lawyers.
When he does sell the house that he owns, unless he physically used the house as his main residence for at least 2 of the 5 years prior to sale, he has to pay capital gains tax on the difference between the selling price and the purchase price you paid.
If, as he suggests, he inherits the house after your passing, then the house is re-valued at the time of your death to market value. This becomes the cost basis for the house. Then, we he sells it, he computes the capital gain the same way--selling price minus the cost basis. Only this time the cost basis is the market value on the date of your death. Likely there is no capital gain if he sells soon after your passing.
So, while you have made it "easy" to pass the property by avoiding the probate procedure (which may be necessary anyway for anything not in your will), he gets the privelge of paying tax.
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