# Co-owners of house one dies. Stepped up basis? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [September 25, 2020, 1:40pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506 "2020-09-25T13:40:57Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Babale](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/babale/32/15666_2.png) [@Babale](https://boards.straightdope.com/u/Babale)\ **Post date:** [September 25, 2020, 6:04pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/21 "2020-09-25T18:04:05Z")
Depends on your state i think, consult a local tax attorney Eta: maybe it doesn’t vary, it’s called a 1031 exchange – not sure how it would apply in your specific situation with dual owners though ---
**Author:** ![OldGuy](https://avatars.discourse-cdn.com/v4/letter/o/3bc359/32.png) [@OldGuy](https://boards.straightdope.com/u/OldGuy)\ **Post date:** [September 25, 2020, 6:05pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/22 "2020-09-25T18:05:29Z")
> [@Riemann](#): > > Something to factor in here is that Biden’s tax plan includes abolition of the step-up in basis upon inheritance. (An extremely good idea, since this is a ridiculous tax loophole.) It’s a very good idea in theory; however, it requires the heirs somehow figuring out what the cost basis is, which can be quite difficult if you had no part in the purchase. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:05pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/23 "2020-09-25T18:05:32Z")
> [@Babale](#): > > Also IANAL but can’t B’s parents just reinvest the money in a new home to avoid paying capital gains? Or depending on the state if this was their primary residence they wouldn’t pay anyways. > [@sbright33](#): > > Babale great idea to buy a smaller home to avoid taxes. Is there any catch or requirements in advance for this to work? No, the rules that allowed you to sell one home and replace it with another without paying tax were abolished, and replaced with the $250k tax-free allowance on your primary residence. [Will Your Home Sale Leave You With Tax Shock?](https://www.investopedia.com/articles/pf/06/homesaletax.asp#:~:text=As%20long%20as%20you%20purchase,amount%20of%20tax%2Ddeferred%20gains). ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:09pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/24 "2020-09-25T18:09:48Z")
> [@OldGuy](#): > > It’s a very good idea in theory; however, it requires the heirs somehow figuring out what the cost basis is, which can be quite difficult if you had no part in the purchase. How is “I don’t know how much tax is due” a sensible reason to allow people to evade the capital gains tax that is otherwise due? Just as with all CGT, the onus is on the owner of the property to keep adequate records. If the owner does not keep such records, or fails to pass on those record with their estate, the default basis should be zero. ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 6:10pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/25 "2020-09-25T18:10:11Z")
Bummer it’s not a primary residence. What if it was for the son this year? Still only 250k. ---
**Author:** ![Babale](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/babale/32/15666_2.png) [@Babale](https://boards.straightdope.com/u/Babale)\ **Post date:** [September 25, 2020, 6:12pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/26 "2020-09-25T18:12:48Z")
> [@Riemann](#): > > or the default basis should be zero if they fail to do so. That’s a terrible idea. Who do you think would fail to produce this documentation, multimillionaires leaving their heirs a dozen mcmansions, or a middle class family with middle class heirs whose home constitutes all they can leave to their kids? ---
**Author:** ![Babale](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/babale/32/15666_2.png) [@Babale](https://boards.straightdope.com/u/Babale)\ **Post date:** [September 25, 2020, 6:14pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/27 "2020-09-25T18:14:39Z")
I dont think that’s correct. 1031 exchanges still exist and should covet what you’re looking to do. Theres a time limit and you pay capital gains on any amount you don’t reinvest but aside from that it sounds like it would meet your needs-- with the caveat that I have no idea how it interacts with two owners ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:17pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/28 "2020-09-25T18:17:03Z")
> [@Babale](#): > > a middle class family with middle class heirs whose home constitutes all they can leave to their kids? If your’e just talking about homes being passed on to children by middle class families, there are usually public records of historic transfers. If the purchase was so far in the distant past that those records have been lost, the difference between zero and the actual purchase price is probably only a small percentage of the current value of the property. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:18pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/29 "2020-09-25T18:18:26Z")
> [@Babale](#): > > 1031 exchanges still exist These are for investment properties only. You’d need expert advice on whether/when this could apply to a property owned/inherited in the circumstances described in the OP. ---
**Author:** ![Jasmine](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jasmine/32/2964_2.png) [@Jasmine](https://boards.straightdope.com/u/Jasmine)\ **Post date:** [September 25, 2020, 6:18pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/30 "2020-09-25T18:18:34Z")
> [@sbright33](#): > > You think A should pay for half of B’s capital gains tax? Does that seem fair to you? Anyone else? I didn’t say anything about taxes whatsoever, but there is a link that will help you to see what the Capital Tax Gain is on the house you mention (assuming the numbers you quoted are accurate). [**Tax Gain Calculator**](https://smartasset.com/investing/capital-gains-tax-calculator#6IlqSSruBZ) ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 6:21pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/31 "2020-09-25T18:21:53Z")
625k if sold this year. Half that for each party receiving it without stepped up basis. This is worth the time to discuss it. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:30pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/32 "2020-09-25T18:30:53Z")
> [@Jasmine](#): > > I didn’t say anything about taxes whatsoever Indeed, and you don’t appear to understand the tax aspect at all, since the step-up in basis may allow an inheritor to avoid any CGT liability. So the problem was with you claiming that: > [@Jasmine](#): > > The simplest and cheapest solutions are usually the best. ---
**Author:** ![Jasmine](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jasmine/32/2964_2.png) [@Jasmine](https://boards.straightdope.com/u/Jasmine)\ **Post date:** [September 25, 2020, 6:44pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/33 "2020-09-25T18:44:40Z")
> [@sbright33](#): > > 625k if sold this year. Half that for each party receiving it without stepped up basis. This is worth the time to discuss it. I would say this to “Son A”: “I’m not going to pay the entire tax and accept $375 thousand while you clear a million. I’d rather refuse to sell at all. If, however, you are willing to split the taxes, we can each clear almost seven hundred large, a big chunk of money that we didn’t have before.” To me, at least, that is the “simplest solution” and the one most beneficial to both parties.Since “almost seven hundred large” is gigantically better than nothing at all, he should agree unless he is so greedy it has clouded his judgment. In that case, screw him, I wouldn’t sell. ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 6:50pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/34 "2020-09-25T18:50:07Z")
We’d like to do what is best for everyone. As a team. Being selfish only after we achieve that goal. ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [September 25, 2020, 6:55pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/35 "2020-09-25T18:55:18Z")
Yes, I mean I think the first objective would be to figure out what the options are acting cooperatively to minimize the total tax liability. But I think there are so many moving parts here you need expert advice - and the sums are large enough that it’s worth paying for good advice. Once you’ve figured out what is possible, I think the question of what’s fair among the parties involved is really a subjective one. And _could_ get antagonistic. ---
**Author:** ![PunditLisa](https://avatars.discourse-cdn.com/v4/letter/p/4af34b/32.png) [@PunditLisa](https://boards.straightdope.com/u/PunditLisa)\ **Post date:** [September 25, 2020, 6:56pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/36 "2020-09-25T18:56:38Z")
How is it titled? Let’s just assume that each couple has JTWROS and that the unadjusted cost basis is $1,980,000 or $990,000 each party, which is $2,000,000 minus $20,000. That doesn’t include any improvements made over the years, but let’s go with it for the sake of argument. Scenario 1) Sell the property now, and each party would have to pay capital gains on $990,000. Taxes suck, but it’s the price you pay to live in a great country where property values can balloon from $20,000 to $2,000,0000! And you wouldn’t ruin a friendship because you each paid, and received, the same amount. Scenario 2) Wait to sell until after A1 dies. Unless couple A dies simultaneously, which is highly unlikely, upon A1’s death, his spouse (A2) will own the property outright, without going through probate, and (if I read properly), the decedent A1’s 50% share will receive a step up adjustment of $495,000. A2 would have to pay capital gains on $495,000 and couple B would have to pay gains on $990,000. Scenario 3) Wait until after A2 dies to sell. Heir A will enjoy a step up basis of $990,000 and will owe no capital gains. Couple B would have to pay capital gains tax on $990,000. In Scenario 1 or 2, they could certainly all agree to add all capital gains taxes owed together, and then pay those taxes as co-owners, prior to distributing the proceeds of the sale 50/50. That would save both parties money vs. Scenario 1 but requires working together. One way to avoid paying ANY capital gain taxes is if the joint owners took out a HELOC (rates are incredible) to improve the property to the point where they could rent it out to cover maintenance and property tax until couple B dies, at which time Heirs A & B could sell the property and both would enjoy the step up basis. Of course, the HELOC would need to be paid off prior to distribution of proceeds, but the sales price would be more because you’ve used the HELOC to fix up the joint. Another alternative is that since couple A’s deaths are imminent, heir A could sell his half to B at a reduced price to account for the capital gains that B would have to pay. A would still end up with a sizeable chunk of change, tax free, and B would own an asset worth $2,000,000 that he paid less than that for. ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 6:57pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/37 "2020-09-25T18:57:38Z")
The lawyers we met with have not yet come up with additional possibilities. That’s why I’m here getting legal advice from a newspaper columnist online forum? Love you guys! ---
**Author:** ![ThisIsTheEnd](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/thisistheend/32/4713_2.png) [@ThisIsTheEnd](https://boards.straightdope.com/u/ThisIsTheEnd)\ **Post date:** [September 25, 2020, 7:01pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/38 "2020-09-25T19:01:19Z")
I don’t think you’ve defined the ownership structure of the property sufficiently. Four people can own a house. I don’t think “two couples” can. How do you know Son A even has standing to inherit an interest? ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 7:03pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/39 "2020-09-25T19:03:06Z")
Great thoughts thinking… ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 25, 2020, 7:09pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/40 "2020-09-25T19:09:26Z")
Sorry it is titled to 4 people. A will get it when both his parents are gone in the will. [Previous page](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506.md?page=1) [Next page](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506.md?page=3)