A woman received a house as a gift from her father. She has lived in it for several years with her husband. She is thinking of making her husband a joint owner. Wouldn't this raise the exemption from capital gains tax from $250k to $500k upon sale of the house? Wouldn't it set his basis in the property at one half what her father paid for it?
There are a few moving parts to your question, but I'll take them one at a time:
a) if the house was gifted during her father's life, then the woman took the basis that her father had at the time of the gift;
b) the couple is entitled to a $500,000 capital gains tax exemption upon the sale of the house no matter how the house is titled, PROVIDED that they meet the other requirements for said exemption;
c) after the transfer to joint ownership, the husband would have, effectively, half of his father-in-law's basis in the house.
The woman's best bet is to retain an attorney to confirm this information and to assist in the preparation of the deed, if she decides to go that route.
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I agree with Mr. Pankowski's analysis and his conclusions. Your last question suggests that there is something you are trying to achieve that is not obvious from the rest of your summary. If this is the case, then you should consult with a CPA or estate planning attorney to make sure that your plan is the best way to do so.
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Though you don't ask about this, the contemplated gift would be converting a separate (non-marital) asset into a joint (marital) asset. This has significant consequences in the event of divorce. You also categorize this as estate planning, but do not give enough information to know if this is actually an estate planning issue. Whether this is being done for estate planning purposes of for some other reason, the woman in question needs an attorney to advise her on whether this is the best course of action.
Evan H. Farr can be reached at 703-691-1888 or at http://www.farrlawfirm.com. Evan is Certified as an Elder Law Attorney by the National Elder Law Foundation, which is approved by the American Bar Association, but Virginia has no procedure for approving certifying organizations. NOTICE - Unless expressly stated otherwise, this communication: (1) is not legal advice absent an existing attorney-client relationship between us; (2) does not create an attorney-client relationship; (3) does not constitute an offer, acceptance, or contract amendment; (4) may contain confidential or legally privileged information protected by the attorney-client relationship and/or work product privilege; (5) is only for the use of the individual to whom it is intended by the sender to be sent, and if you are not such recipient, disclosure, copying, distribution or reliance upon this communication is prohibited; and (6) is not intended, and cannot be used, to avoid tax-related penalties pursuant to treasury department circular 230.
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