Understanding Joint Home Ownership
Joint home ownership refers to a type of concurrent ownership which two or more people own the property. The most common joint home ownership is when two spouses – a husband and a wife – put their names on the property. The characteristic of this type of home ownership of that it is associated with survivorship such that when one owner dies, his or her share on the property is passed on to the remaining owners. Joint homeownership has many financial advantages and this article will focus on the tax benefits of joint home ownership.
General Tax Benefits Of Joint Home Ownership
Better Loan Options
One of the tax benefits of joint home ownership is that homeowners have better loan options. For homeowners, they can get a joint home loan and share the debt burden between the owners of the house. Joint home ownership is not only limited for married couples, but it can also include ownership of a property among sisters and family members. For married couples, getting a joint home loan means that they can get a higher loan especially if they both work because the mortgage lender takes into consideration the income that the couple can bring into the house. This type of loan can be obtained by filing an application together with the rest of the owners of the house. As a co-owner of a property, an individual is also the co-borrower of the loan and is also responsible for making payments for the interest and the principal amount. Only the co-owners are eligible in claiming the tax benefits.
Estate Tax Consequences
Another one of the tax benefits of a joint home ownership is the estate tax consequence. However, it is important to take note that the estate tax largely depends on whether the property is co-owned by a married couple or by other individuals (siblings) or (parents and siblings). For couples, half of the value of the house belongs to each owner – half for the wife and the remaining half for the husband. When one spouse dies, only one-half of the gross estate will be subjected to estate tax but even so, it is still deductible under marital deduction provisions. The Unified Transfer Tax Credit refers to any amount of assets that individuals that are allowed to gift to other parties without the need to pay for taxes (gift, estate, and/or generation-skipping transfer). Varying amounts of the unified transfer tax credit can shield your property. For instance, a credit of $190,000 can protect a property that has a market value of $600,000 from estate tax. For couples, the market value increases to $1.2 million. One of the tax benefits of joint home ownership is that it can minimize the estate taxes payable by the estates of the co-owners. However, if the value of the property involved is very larger, using the unified credit may not be beneficial especially to the remaining co-owner and more property will be subjected into the estate tax of the remaining co-owner.
Non-Spouse Joint Tax Benefits
Non-spouse joint home ownership refers to ownership of property by a sibling and their parents. Creating such joint homeownership results to a taxable gift and the amount largely depends on the state law. However, if the child is the joint tenant, the taxable gift is no less than 50% of the value of the home. It is important to take note that the annual tax exclusion of $14,000 may also not be applicable for this gift but the lifetime estate exemption can be applied for this gift. For joint home ownership by parents and their children, if the child does not contribute to the payment of the mortgage, the entire value of the house will be included in the parent’s estate.
Aside from the tax benefits of joint home ownership, there are other benefits that people can enjoy this type of home ownership. The most obvious benefit is to avoid probate. Once one of the owners dies, the share of the property of the deceased co-owner will be automatically transferred to the other co-owners thereby avoiding probate. Since the property is no longer subjected to probate, the advantage is the co-owners do not have to undergo a lengthy court proceeding and they can decide to sell the property as long as they pay the estate tax of the deceased co-owner. One of the tax benefits of joint home ownership is accountability. Since both parties share equal responsibilities, they share the liabilities equally among themselves. This means that neither of the co-owners can incur debt on the property without indebting themselves. For instance, if a husband cannot get a loan against a property with the intention of leaving most of the debts with his wife especially when he plans to divorce her. Thus, the moment that the husband takes the loan, he is also responsible for repaying it. Furthermore, he cannot lease part of the property without sharing the money with his wife.
Caveats Of Joint Home Ownership
While there are tax benefits of joint home ownership, there are several caveats. Remember that this type of ownership is based on having a good relationship with other owners, problems may arise if the relationship between the owners deteriorates. For instance, marital problems leading to divorce and strain in the relationship between siblings can affect the property. On the other hand, if the deceased has huge amounts of debt, the court can freeze the property and the transfer of the shares can be canceled. There are many tax benefits of joint home ownership and more. If you are a co-owner of a home, then it is important that you know your benefits so that you know how to handle the property that you co-own. If one of the co-owners pass away and you decide to sell your house, then this is where Sell Quick California comes in. They can help you find ways to sell your house so that you can use the funds to pay for the acquisition of a new home and thereby keep enjoying the tax benefits of home ownership.