Sale of a house with joint ownership

Forum|Forum|3 years ago
January 17, 2023
8 replies
31 views

My mother, my brother, and myself had joint ownership in a house in North Carolina which was sold in 2022. My mother passed away in November of 2019 which left me and my brother as joint owners. My parents bought the house around thirty years ago as a vacation home. My brother has lived in the house for about six to eight years but I have only vacationed there. Will the exemption apply to the both of us or only him?

TomD8

Alumni - Champ

You do not qualify for the capital gain exclusion on your portion of the capital gain since you do not meet the "use test." The "use test" requires that you must have used the home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. The fact that you are a co-owner does not relieve you of that requirement.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

hawkshawcahAuthor

Level 2

So do I deduct the full price that my parents paid for the house from my portion or half?

Bsch4477

Level 15

The cost basis of the home is its fair market value at the date of your mother’s death since you inherited it. So you would use half of that which you subtract from half of the net sale. If your brother paid for any improvements it seems fair that he would use those costs to increase his cost basis.

Bsch4477

Level 15

The exclusion only applies to your primary residence so only your brother can claim the exclusion.

Hal_Al

Level 15

It also depends on how you became co-owner. If your mother was living in the home up until her passing and she (and maybe your father) had been the owners prior to "putting you on the deed", special rules may apply.

The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you parents paid* for it). But there is an exception for the gift of her home, where she retained the right to live there ("life estate"). "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")

More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1

*If your father died first, his half stepped up when your mother inherited it.

You may want to seek professional tax help before reporting the sale, on your tax return.

TomD8

Alumni - Champ

The original question implied that the property was co-owned prior to the mother's death. Note this:

A decedent's interest in property held in a joint tenancy (with a right of survivorship) or a tenancy by the entirety that passes to the other owner by operation of law is considered property acquired from a decedent (IRC § 1014(b)(9) ; Reg. §1.1014-2(b) ). Therefore, the surviving tenant's basis in the property consists of his or her old basis in their original interest and the fair market value of the decedent's interest.

https://answerconnect.cch.com/document/arp28d140970e7b6d1000b87a001b7840a5b2020b/federal/irc/explanation/basis-for-survivor-of-joint-tenancies-or-tenancies-by-the-entirety

I agree with @Hal_Al's recommendation that you may want to seek professional help with regard to the tax aspects of the sale.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

hawkshawcahAuthor

Level 2

So I take it that which ever value I am to use, it will be half of that value for each of us. Will I be able to get this professional help when I use turbo tax to file?