Types of property ownership
There are several types of property ownership. In general, property owners have the right to do whatever they want to the land they own, except for violating state-imposed laws. For instance, property owners can rent their property to others, sell or transfer ownership, use their property for loan collateral, leave their property to beneficiaries if they die. These rights do not change, but there are some differences in rights based on the type of property ownership.
Joint tenancyJoint tenancy is when more than 1 person owns a property in equal shares. Each co-owner has a joint interest in the property and must be consulted before changes are made to it.
The thing that differentiates joint tenancy from other types of property ownership is that when 1 of the joint owners dies, their interests are automatically transferred to the remaining owners by law. For this purpose, joint tenancy is sometimes called joint tenancy with right of survivorship.
Some states do not allow joint tenancy. This is partly because no trust or will is required to transfer ownership, which means owners can avoid paying necessary taxes. Check with a real estate attorney in your area to see if joint tenancy is an option for your property.
Tenancy in the entiretyTenancy in the entirety is a special form of joint tenancy where a married couple each own half the interest in the property. Neither spouse can sell their interest in the property without the other's consent. This protects an individual from losing ownership of the property in the event that their spouse files for bankruptcy. Again, this form of property ownership is not allowed in all states.
Sole ownershipSole ownership is when 1 person owns a property exclusively. That person must use a property deed document to transfer property ownership. If the owner of the property passes away, ownership is transferred through a will or trust.
The beneficiary of the property must pay an estate tax instead of a capital gain tax. For instance, if a child's parent paid $250,000 for a home now valued at $500,000, the child does not have to pay a capital gain tax on the $250,000 gain from selling the home.
There are several benefits to owning property, but one of the biggest is the ability to deduct interest on your taxes from a mortgage or home equity loan. There is also liability in owning property. For instance, if someone is injured while on your property, you are responsible for the damages. You can protect yourself from lawsuits by purchasing property insurance.
Tenants in commonTenants in Common is when 2 or more people own a property, but not in equal percentages. For instance, one person could own 70% while another owns 30%. Individuals can share their ownership separately.
If one of the property owners dies, ownership is not automatically transferred to the other owners. Each share of the property can have individual beneficiaries.
Community propertyWith community property, several people own shares in a property. All shares are of equal value. When a property owner dies, their share is transferred to a beneficiary. A community property owner can give up their shares at any time without penalty. Community property is only allowed in 10 states, mostly in the West.
These are the 5 most common types of property ownership. Before buying property, make sure to check for zoning violations, environmental hazards, state restrictions on land use, and potential defects in the property title. A real estate attorney can help protect your property interests.