# 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:** 3
**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, 7:19pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/41 "2020-09-25T19:19:51Z")
Stupid question: could a HELOC be used to build a small cottage instead of fixing the house? There is zero equity in the building the land is worth 2m. Or would this be called a construction loan? That seems more difficult with additional rules. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [September 25, 2020, 7:35pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/42 "2020-09-25T19:35:14Z")
> [@Riemann](#): > > 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. Why do I care what the total tax liability is? All I care about is what my tax liability is. ---
**Author:** ![Falchion](https://avatars.discourse-cdn.com/v4/letter/f/a88e57/32.png) [@Falchion](https://boards.straightdope.com/u/Falchion)\ **Post date:** [September 25, 2020, 7:35pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/43 "2020-09-25T19:35:14Z")
> [@PunditLisa](#): > > Let’s just assume that each couple has JTWROS This doesn’t seem likely. For the scenario to make sense, it has to be a tenancy in common. Presumably with four co-owners. Otherwise, when Couple A dies, the Couple B just owns it outright (and Son A gets nothing). ---
**Author:** ![Falchion](https://avatars.discourse-cdn.com/v4/letter/f/a88e57/32.png) [@Falchion](https://boards.straightdope.com/u/Falchion)\ **Post date:** [September 25, 2020, 7:39pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/44 "2020-09-25T19:39:05Z")
> [@sbright33](#): > > Sorry it is titled to 4 people. A will get it when both his parents are gone in the will. So, we’ve got four co-owners (each with a 25% share?) as tenants in common – MA, FA, MB, and FB. When MA dies, does his share go to the son (SA)? Or does it go to his wife (FA), which would be pretty typical. ---
**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, 7:42pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/45 "2020-09-25T19:42:22Z")
> [@Dewey\_Finn](#): > > Why do I care what the total tax liability is? All I care about is what my tax liability is. If there are several parties involved, all currently on reasonably amicable terms, I think the best initial plan is to figure out what options are available if everyone cooperates to minimize the total tax liability. Of course, cooperation may fall apart if it turns out that various parties’ interests are in direct opposition. But it’s usually better (and cheaper) to avoid going down an antagonistic path with things like forcing the sale of a jointly-owned property if that can be avoided. ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [September 25, 2020, 7:44pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/46 "2020-09-25T19:44:15Z")
But what if the tax liability varies among the parties, as seems to be the case here? Should I assume some of the other party’s tax liability? ---
**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, 7:47pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/47 "2020-09-25T19:47:14Z")
If acting cooperatively can reduce the _total_ tax liability, then the rational course of action is to cooperate and to arrange compensation so that everyone is better off than if they acted purely selfishly. But of course that only works if the question of _when_ the proceeds from the sale are received is not a direct conflict among the parties involved. ---
**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, 7:52pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/48 "2020-09-25T19:52:43Z")
The son A does not care when he gets the actual funds he has money already. But he wants to retain the right to sell as the RE market fluctuates. Before it crashes to reduce risk? ---
**Author:** ![Roderick\_Femm](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/roderick_femm/32/14875_2.png) [@Roderick\_Femm](https://boards.straightdope.com/u/Roderick_Femm)\ **Post date:** [September 25, 2020, 8:26pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/49 "2020-09-25T20:26:02Z")
> [@sbright33](#): > > Reoderick, TIC. The irs does not always try so hard to find a better solution with they taxpayer in mind? It can’t hurt to ask, especially if you have a professionally qualified 3rd party ask for you, leaving all actual names out of it. And after seeing some of the replies in this thread, I can’t stress enough how much I think you all should pitch in for a professionally qualified opinion. For something this important, it is foolish to depend on the qualifications of strangers on the internet. ---
**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, 9:47pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/50 "2020-09-25T21:47:58Z")
Yes, you’re right. It’ll have to go through probate each time someone dies, then. ---
**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, 9:57pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/51 "2020-09-25T21:57:17Z")
I thought that there was a house on it that needed to be updated before it could be rented out. So there goes the HELOC idea. You could certainly qualify for a construction or Land Equity loan to build a cottage. Banks will usually lend up to 80% of the bank’s appraised value, which may be far less than what a realtor says it’s worth, but rates are about double a conventional loan or HELOC. And building comes with risk. If you build something small just to rent out, you may end up spending what you hoped to save in taxes. And having a modest structure may actually hurt you when you go to sell it, since a buyer willing to fork out $2M for the land isn’t going to want a modest cottage. ---
**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, 11:16pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/52 "2020-09-25T23:16:03Z")
Is it possible to virtually build a new cottage? While calling it remodeling, on the same foundation. With a HELOC? ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 26, 2020, 12:53am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/53 "2020-09-26T00:53:41Z")
Very well said Riemann ---
**Author:** ![PunditLisa](https://avatars.discourse-cdn.com/v4/letter/p/4af34b/32.png) [@PunditLisa](https://boards.straightdope.com/u/PunditLisa)\ **Post date:** [September 26, 2020, 3:00am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/54 "2020-09-26T03:00:58Z")
No, because they send an appraiser out to value the home and will usually only lend 80% of that number. ---
**Author:** ![sbright33](https://avatars.discourse-cdn.com/v4/letter/s/8e8cbc/32.png) [@sbright33](https://boards.straightdope.com/u/sbright33)\ **Post date:** [September 26, 2020, 4:41am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/55 "2020-09-26T04:41:56Z")
The building, not including the land? ---
**Author:** ![doreen](https://avatars.discourse-cdn.com/v4/letter/d/858c86/32.png) [@doreen](https://boards.straightdope.com/u/doreen)\ **Post date:** [September 26, 2020, 10:36am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/56 "2020-09-26T10:36:25Z")
The appraisal will cover the building and the land- but if anything is wrong with the building, the loan won’t be approved before it’s fixed. When I got my HELOC, I had recently gotten new front steps and hadn’t put railings up yet. I had to get the railing before the loan was approved. I’m not sure exactly what you mean by “It’s too old to rent out” , but I suspect it might be issues that keep the HELOC from being approved. ---
**Author:** ![PunditLisa](https://avatars.discourse-cdn.com/v4/letter/p/4af34b/32.png) [@PunditLisa](https://boards.straightdope.com/u/PunditLisa)\ **Post date:** [September 26, 2020, 1:03pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/57 "2020-09-26T13:03:31Z")
They will appraise whatever you’ve put up for collateral to secure the loan you are seeking. You asked if you could “virtually” build a house using the foundation of the old one using a HELOC. I’m saying that the bank will send an appraiser to determine the value of your current home in order to determine how much money they will lend you. IOW, they will notice that there is no cottage. If you want to use the value of the land to build, then you’ll have to seek a construction loan or Land Equity loan, and the rates on those are double the price of the HELOC. I think your best option is to seek out an account that specializes in tax strategies. ---
**Author:** ![PunditLisa](https://avatars.discourse-cdn.com/v4/letter/p/4af34b/32.png) [@PunditLisa](https://boards.straightdope.com/u/PunditLisa)\ **Post date:** [September 28, 2020, 3:30am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/58 "2020-09-28T03:30:26Z")
My husband said you could also look into a 1031 exchange. It’s too complicated for me to understand, but a tax professional should be able to explain it. ---
**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 28, 2020, 11:45am UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/59 "2020-09-28T11:45:17Z")
> [@sbright33](#): > > We’d like to do what is best for everyone. As a team. Being selfish only after we achieve that goal. Define “what’s best for everyone”. I view it as splitting the profits from the sale of the house and the taxes equally so that “everyone” gets an equal share. If “Son A” insists on clearing a million while “Daughter B” gets a third of that, then he already has shown that he is not interested in “what’s best for everyone”. He is interested in what’s best for him, so that ship has sailed. So, if the “we” means both “Son A” and “Daughter B”, I think you are being unduly optimistic when you say, “We’d like to do what is best for everyone.” ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [September 28, 2020, 1:42pm UTC](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506/60 "2020-09-28T13:42:02Z")
But the taxes are not _owed_ equally. They vary depending on each person’s situation. That is independent of them receiving an equal share of the house sale proceeds. [Previous page](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506.md?page=2) [Next page](https://boards.straightdope.com/t/co-owners-of-house-one-dies-stepped-up-basis/921506.md?page=4)