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Ray
Ray, Lawyer
Category: Real Estate Law
Satisfied Customers: 37085
Experience:  Texas Attorney for 30 years dealing in real estate
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My ailing father did a Quit Claim deed last year and added

Customer Question

My ailing father did a Quit Claim deed last year and added my name to the title of his house and we refinanced it in both of our names.
He has since passed away. If I sell the house now am I subject to Capital Gains Taxes since it has been in my name less than 2 years?
Submitted: 3 months ago.
Category: Real Estate Law
Expert:  Ray replied 3 months ago.

Hi and welcome to JA. Ray here to help you today.Please bear with me a few moments while I review your question, conduct and prepare your response.

Expert:  Ray replied 3 months ago.

You would only owe capital gains here on your half if there was a gain from the date he added you to the deed.If there was gain here it likely isn't going to be that big.His estate is going to have a final return, it may be possible for him to claim virtually all the gain from when he bought it here until sold.If he resided in it for 2 out of last 5 years the gain for him and his estate is likely to be exempted.

Expert:  Ray replied 3 months ago.

Reference IRS

Ownership and Use Tests

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have:

  • Owned the home for at least two years (the ownership test)
  • Lived in the home as your main home for at least two years (the use test)

Gain

If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

  • If you can exclude all of the gain, you do not need to report the sale on your tax return
  • If you have gain that cannot be excluded, it is taxable. Report it on Schedule D (Form 1040)

I appreciate the chance to help you today.Thanks again.

Customer: replied 3 months ago.
Ray,I think you may have misunderstood the question. My father is no longer alive so he is not part of the transaction. There is equity in the home so when I sell it I was wondering if I am going to have to pay taxes on the equity. I was put on the deed last year so I haven't owned it for 2 out of the last 5 years. However, he lived there for 30 years. There was probably a slight increase in equity the past year since I have been put on the deed but I don't know how I would determine how much that was.Thanks.
Expert:  Ray replied 3 months ago.

You will have gain here on the property.It would be from the time you got half here and you owe for that gain to the time you sell it.The basis here is when you got your half.The father here who deceased would need to report the gift to you on his last return if the half here was more than $14k.Even though he deceased he would have a return due to account for the gift.You can look to the tax value at time he gifted it to you by deed.Your gain here if you only got half would be from that point to time of sale divided by half.Now if you got the other half here say by will there will be a different basis for that half.

The basis starts when you got title either for the first half or if you inherited the other half.If someone else got the other half here they owe when they sell it for that half.Again the basis starts when they get it and then how much it sells for later on as to what capital gains you owe.

Expert:  Ray replied 3 months ago.

Under current rates depending on your bracket you may owe 15-20% on the gain here, or your share of it.And the laws do change.Don't know if living in it is possible but that would be the way to dodge gain here.You live in it 2 years, sell it in 5 years,

Customer: replied 3 months ago.
Ok, thanks for the information. I understand that him giving me half of the house while he was still alive is considered a gift. Is a gift of equity something that is taxable as well? If he is deceased, who would file his return for him claiming that gift?
Expert:  Ray replied 3 months ago.

Gift here is under $5,450,000 no taxes on it, he will need an estate opened and executor appointed by court if he died with this half interest.It passes to his legal heirs under laws of intestacy if there was no will and you each own half here.

Expert:  Ray replied 3 months ago.

Laws of intestacy

If you die with:

here’s what happens:

  • children but no spouse, parents, or siblings
  • children inherit everything
  • spouse but no children, parents, or siblings
  • spouse inherits everything
  • parents but no children, spouse, or siblings
  • parents inherit everything
  • siblings but no children, spouse, or parents
  • siblings inherit everything
  • a spouse and children
  • spouse inherits all of your community property and 1/2 of your separate property
  • children inherit 1/2 of your separate property
  • a spouse and parents
  • spouse inherits all of your community property and 3/4 of your separate property
  • parents inherit 1/4 of your separate property
  • a spouse and siblings, but no parents
  • spouse inherits all of your community property and 3/4 of your separate property
  • siblings inherit 1/4 of your separate property

The Spouse’s Share in Washington

In Washington, if you are married and you die without a will, what your spouse gets depends in part on how the two of you owned your property -- as separate property or community property. Generally, community property is property acquired while you were married, and separate property is property you acquired before marriage. There are a couple of big exceptions: Gifts and inheritances given to one spouse are separate property, even if acquired during marriage.

Executor would file his last return here.You would need to resolve this other half here if there are heirs otherwise you are stuck with a tenants in common situation with other owners.You would want clear title before you keep paying on it.

Thanks again, sorry for your loss of father.

Customer: replied 3 months ago.
The deed that my father and I did was 'Joint Tenancy Right to Survivorship' with only he and I on it. Since he has passed, the deed and the property is solely owned by myself, right?Thanks.
Expert:  Ray replied 3 months ago.

Ok so you own it all no probate here.There will be a split cost basis when you sell it and pay taxes, one is calculated from date of deed and second half from date of death when you inherited the second half.Honestly this is such as a short period the halves and taxes for each will not change that much.If you live in it for 2 years, sell it in 5 you skip capital gains here entirely in all likelihood.

Thanks again.

Expert:  Ray replied 3 months ago.

I appreciate the chance to help, please let me know if you have more follow up.If you can leave a positive rating when we are done it is always sincerely ***** ***** with the remodeling.

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