Legal Question in Real Estate Law in California

Re: tax implications

Depending upon how title is held there may be tax implications at the time of your father's passing. In addition, when you "buy out" your brother's interest, the property will be reassessed and you will receive a supplemental tax bill from the county assessor for the differnce between the property taxes paid before the transfer and after the transfer.

Re: tax implications

If you do not hold title in joint tenancy, you are going to have all kinds of tax problems. If you hold title as tenants in common, your fathers share will have to pass through probate and you will have inheritance taxes.

You should all speak with an estate planning specialist.

Very truly yours,

Re: tax implications

You fail to mention whether the three of you are joint tenants or tenants in common. Since there are three of you, I think tenancy in common is more likely, but three-party joint tenancies are not legally impossible.

OK, I'll answer with an example. Let's say the three of you bought the house 10 years ago for $300,000, taking title as 1/3-each tenants in common. Each of you has a tax "basis" of $100,000. Next, assume the house is worth $600,000 in 2009, and your father dies then, leaving you and your brother each 1/2 of his 1/3. The father's interest gets a stepped-up basis, from $100,000 to $200,000, and you and your brother each get 1/2 of that, so you now own 1/2 of the house with a $200,000 basis. A month later, you buy out your brother, paying him market value ($300,000) for his half.

Your total basis is now $500,000. If you were to sell, your capital gain would be $600,000 - $500,000, or $100,000. The capital gains tax on $100,000 would probably be 15% or $15,000 (the rates may change over time!).

If you hold the property as joint tenants, the survivor(s) will NOT get a stepped-up basis because acquiring an ownership interest under a right of survivorship is NOT the same as inheriting it; in this case you should consider converting the joint tenancy to a tenancy in common (it's rather simple).

If you have lived in the house as your principal residence for two of the last five years at the time of sale, you probably qualify for an exemption from capital gains that would cut your tax liability to zero.

There is an exemption from loss of Prop. 13 assessment value when you inherit from a parent. I don't believe there is an exemption when you buy from your brother, but only his 1/2 interest would get reassessed.

Finally, I see you got at least two other answers, which I glanced at but didn't study. They may be giving you differing opinions, and if so, they may be right, which tells me you should probably get a third, or fourth, opinion.

Re: tax implications

With respect to capital gains, assuming the house is currently held by you, your brother and your dad as joint tenants, when your father passes, his portion (one-third) will enjoy a stepped-up basis to the value at the time of his death; the remaining two thirds wil not, and when you acquire your brother's potion, it will alter the basis of that portion to the value you pay for it and your own portion's value will remain at the value it was when you purchased it. With respect to property taxes, your father's portion will pass equally to you and your brother without reassessment. When you purchase your brother's interest (which will then be one-half)it will trigger a property tax reassessment as to that one-half.