I’ve seen husbands and wives make one frequent mistake that can end up costing them hundreds of thousands of dollars on the sale of their home. That mistake is holding title as joint tenants rather than as community property.
Why is this a problem? Well, for capital gains purposes, if a husband and wife own a home as a community property and one spouse dies, it will eliminate all of your capital gains taxes. If you own the home as joint tenants, however, you’re only going to eliminate half of your capital gains exposure.
Let me give you an example. I worked with a family for many years and the parents were in their 80s. They bought their first house in the 1960s for about $20,000. Today, it’s worth more than $2 million. A few years ago, the husband passed away and the family came to me. We then found out that they were holding the property as joint tenants. That eliminated only half of their capital gains. That’s a potential six-figure tax bill to deal with. If they would have owned the property as community property, it would have eliminated that entire bill.
They still wanted to sell the home to get the money for their mother’s health care. Because the property was held in joint tenancy, however, they were facing a tax bill of several hundred thousand dollars! All because the deed was in joint tenancy, not community property.
Obviously, I can’t give you legal advice. However, if you’d like to take a look at your deed to see how your property is titled, don’t hesitate to give me a call or send me an email. I can also refer you to an attorney or CPA in your area who can help you decide what’s right for your family.
I look forward to hearing from you soon.
