My husband & I listed in joint tenancy on CA home with father, who recently passed. We have primary residence AZ. Selling CA home for 130k. Will we owe taxes??

[pk]

Is the property a residential rental or was this father's main home or second home?  Are you  the inheritor of the property or just co-owners ?  Are you all three on the title of the property ?

without  above info it  would not be possible to hazard an answer, please  

[Gloooria01]

Residential and fathers main home. Co-owners; all 3 on title. Plan to share/split proceeds between Husband and his only other sibling. No probate and no longer considered asset for father as property automatically transfers to remaining joint tenants (husband and I) since his death. We simply file Death of Joint tenant affidavit. Want to split evenly and need to know if we (remaining owners) will have to consider possible taxes owed on this to ensure the split is even and minus expenses. Thanks!!

[pk · Accepted solution]

Assuming that what you had here is a Joint Tenancy,  yes the decedent's share/rights transfer to the surviving partners/owners.  Thus the decedent's share is no longer part of his/her estate.   As such there is no step-up on death and the basis for sale of the property is the acquisition basis  ( all partners together )  plus cost of any improvements.   So the sale of the property and  gains taxation thereof would be the same is if the  asset was owned only by the remaining partners.  Gains would be taxed at Capital gain rate applicable for the sellers.

Any distribution of the proceeds from a sale would therefore be viewed as a  gift from the current owners ( donor) to donee and not an inheritance  from the decedent.  The donors would have to recognize this by filing a form 706.  

I am assuming here that there was no will / testament of the decedent naming this asset.

Does this answer your query

[Gloooria01]

This does answer and no Will or Trust secures. Thank you!!

[Gloooria01]

Do we pay capital gains applicable to CA or AZ?

[pk]

Since the property is in CA, you will have to file CA return as a Non-Resident and  pay taxes on "in-state" income  ( Capital gain tax ).   AZ will tax you on world income as a resident and  give you credit for taxes paid to another state.  Note that generally  in TurboTax, you should prepare the Non-Resident state  first and then the resident state -- that way the credits for taxes would automatically flow to the resident state filing.

[Gloooria01]

2 returns, wow. Hoping TurboTax/Intuit  will have live help when we prepare for 2019. Many many thanks!

[Hal_Al · Accepted solution]

You should probably consult with a tax lawyer.

The usual rule, for a gift (when you father put you and your spouse on the deed), is that the recipient's basis is the giver's basis (what you father paid for it). But there is an exception for the gift of his home, where he retained the right to live there ("life estate"). (seehttp://www.njelderlawestateplanning.com/2010/02/articles/estate-and-inheritance-tax/life-estates-est... which states in part "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

A life estate does not have to be explicitly established in the deed. Your father probably had an "implied life estate." If so, that would give you the stepped up basis. There is case law on this. 

If any capital gains tax is due, it all falls on you and not shared by the spouse's sibling.  The amount  you give to the sibling is simply a gift and not income to the sibling. 

[pk]

@Gloooria01 , whereas I do not disagree with @Hal_Al  that in general such situations should be discussed with a lawyer dealing with joint tenancy. However, and not being privy to the antecedents of the case , I am assuming that  (a) this is a joint tenancy established  to protect the each of the parties  access & use of the  property ---  i.e. survivorship persists in toto;  (b) there was no will required because the joint-ownership law will allow the property to stay outside probate; (c) there are no other inheritors now/ past/future except for the  two siblings ( issue of the decedent).

In such a case , I maintain , keeping  it simple  is the best way forward.  By law the decedent has no right and the non-partner sibling has also now right to the property.  Thus when you , the surviving partners and owners of the property  do take steps  to equitably share the proceeds of the asset  as if there was a will in place,  there really cannot be any downside .  Absent any will and/or other assets of the decedent that needs to distributed, the decedent passed  with no estate and therefore no probate and no distribution is mandated.

It is of course your choice whether you consider a lawyer should be involved or not  -- personally , I always  have used lawyers  when I really have a  situation where I know what I am looking for -- they are very good at answering when placed in target area -- fishing they do not do very well.  That is my take.

I apologize, if I have offended  any one with my opinion  / articulation