My brother and father owned a condo jointly. My brother passed away. Tax, what happens?

Question

Will my father only have to pay half of the capital gains since they owned it jointly or will he have to pay all capital gains.

Live in Maryland. Father did not live with brother in condo upon death. Only brother lived in the condo. It is up for sale now. When it sells what portion is capital gains.

Answer 1

He would have to pay all of it. The condo was jointly owned since brother is gone dad has to pay all Dad is still responsible for the gains. I'm sorry on the loss of your brother how sad :o(

Answer 2

Please ignore the previous poster. They are wrong.

The tax, if any, will be paid by your brother's estate. Unless his estate is worth more than $2,000,000 there will be no Federal inheritance tax due. There could be a state inheritance tax, however; those tax rules depend upon state law. In any case, your Dad will pay no inheritance tax.

If the deed was held as Joint Tenants with Right of Survivorship (JTROS) then title passed to your Dad automatically upon your brother's death. His only tax consequence is when he sells the condo. If it's his principal residence he can exclude up to $250,000 of the gain on sale as long as he lived in it for 2 of the 5 years immediately prior to the sale.

Since it was jointly owned, his cost basis is one-half the price originally paid for the condo plus one-half the fair market value at the time of your brother's death.

For example, if they paid $100,000 for the condo and it was worth $200,000 when your brother died your Dad's cost basis is $150,000. This will reduce the gain on the sale. If he sold it for $200,000, his gain would be $50,000. If he qualifies for the exclusion there will be no tax. If he sold it for $500,000.00 the gain would be $350,000. If he qualified for the exclusion, his taxable gain would be $100,000. That would be treated as a long-term capital gain which is normally taxed at 15% so he'd owe $15,000 in tax on the gain.

Addendum: His basis is as I explained above -- one half the purchase price + one half the fair market value on the date of your brother's death when your father became the sole owner. The gain is the difference between the net proceeds from the sale and his basis. If he owned it for more than 1 year (the period of joint ownership with your brother counts) then the gain is taxed at the lower long-term capital gains rate. If he owned it less than one year (as of the date of sale) the entire gain is taxed at his marginal rate.