My sister and my mom were joint tenants in our house. My mom recently passed. My mom did not have a will. We understand that that the property's ownership is transferred to my sister due to right of survivorship. We are selling the house and we figured after paying the mortgage there will be a least $500,000 left to divide between me, my two sisters and my dad.
No, the $500k exemption is for married couples who have claimed the property as their primary residence for any 2 years in the past 5 year period. The 2 years do not need to be consecutive, it can be year 1 & year 5 as long as it is 2 years in the past 5.
Thus, if she was not married the $500k capital gains exemption will not apply to her. However, she will likely be entitled to $250k capital gains exemption as a single individual.
I'm sorry to read of your loss.
Based on your question, sister is 100% owner of property. Have you thought about that? She's responsible for taxes and doesn't have to share proceeds, which would be taxable gifts if she did.
You and family may want to review everything with a South Bay estate planning attorney.
Both my colleagues have given great responses. The one area that I would like to add is that I would strongly suggest that you discuss this with a certified public accountant or CPA as everyone has a unique tax resolve. In law school I obtained a specialty tax certification and based on that experience of learning how much I do not know about tax law, I always defer any tax question to a CPA and if that does not work, then an attorney that specializes in tax law; of which I do not.
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