This is an older post so I don't know what happens if I reply with further comment/questions, but here goes.
And... I hate to be so long-winded but it seems necessary to make a complete case. We are talking about 10's of thousands of dollars here...
In our case:
Aunt made niece JTWROS on aunt's California home in 2008. No consideration (contribution/payment) was made by the niece. In fact, the aunt wrote 'Gift' on the Grant Deed.
Aunt passed in 2021, with the home going directly to the niece. House was then sold in 2021. Niece never lived in home with aunt.
Now doing joint return for the niece, my wife. Was told by CA CPA that 1/2 the aunt's original price and 1/2 the FMV at D.O.D gets attributed to niece and niece gets only 50% step-up basis. Potentially huge tax bill!
Researching hard, and if reading correctly, see in IRS Pub 551, 'Property Held by Surviving Tenant', page 10, if a non-qualified (non-spouse) JT has no consideration in the cost of the property, here being the niece and surviving JT, that the entire FMV the time of death of the other JT (aunt) is attributed to the aunt's estate and the surviving JT's stepped up basis is the same FMV (not just the 50%). Pub 551 makes no mention of living on or in the property in this section.
Based on the last few replies for this post, and the following two statements from different law offices in online documents and the IRS Pub 551, it seems clear that the niece's stepped-up basis would be 100% of the FMV.
- JTWROS property’s step up in basis depends on whether or not the owners are married. If married there will be a 50% step up in basis. If not, it is based on the decedent’s percentage of contribution.
- For non-married joint tenants, the rule looks at contribution. If the decedent paid for the property, then added his daughter's name and held the asset in joint tenancy upon his death, there is a basis adjustment to 100% of the property. If the daughter dies first, there is no basis adjustment.
From IRS Pub 550, Page 10 – (Depreciation is irrelevant – my note)
If Jim hadn't contributed any part of the purchase price, his basis at the date of John's death would be $54,000. This is figured by subtracting from the $60,000 FMV, the $6,000 depreciation allocated to Jim's half interest before the date of death. If under local law Jim had no interest in the income from the property and he contributed no part of the purchase price, his basis at John's death would be $60,000, the FMV of the property.
If this is all true, maybe the biggest question not is, must the JT have lived in the property/home to make this a reality? Otherwise, what if it is undeveloped property that has no dwelling? (Because, this is a scenario we will have to work through in the future as well)
It seems quite clear to me but maybe I am being too optimistic. I may be hoping against hope. 🙂
