Inheritance Tax On Real Estate Comes Up With A Jointly Owned Property

Q: My father added me to the deed of his house and made me co-owner when my mother passed in 2004. He died this past August. We had the house appraised for $75,500 in October.

We had offers of $47,000 and $50,000 without listing it but based on the appraisal felt we should at least try our luck with the market. The inheritance tax was calculated based upon the appraised value (although the return has yet to be accepted by the state.)

We put it on the market a week ago and it sold in one day for $100,100. For the purposes of calculating my capital gains tax, what would my basis be?

A: You have a bit of a complicated issue for this question. Since your father added your name to the house in 2004, you could be considered a half owner of the home as of that date.

As to your father’s half interest in the home, you may be able to use the sales price as the actual value since you sold it within 6 to 9 months. That would mean you wouldn’t have to pay any capital gains taxes at all on that half, but might have to pay a bit of tax on the sale of your half.

Please talk to an estate attorney immediately about revising the estate tax return and saving the capital gains tax.

For many people, the practice of adding a name to a deed may not always be the best thing to do. If your father had placed the property into a living trust, upon his death you would have inherited the whole house and under the estate tax laws of last year, you might not have had to pay any tax at all on the sale of the home.

But if you are considered a half owner of the home as of 2004, you might have to pay tax on the sale of the home on the difference between what your father paid for the home and what you got on the sale of the home.

One last item to remember: 2010 is an odd year for estate planning. The estate tax laws that are in effect this year are quite different from some of the estate tax laws in effect last year. If Congress does not take any action on the estate tax, then the estate tax laws will be extremely different next year. Trying to work with the estate tax laws these days is quite difficult.

Good luck