Taxes: basis of home on death of joint tenant?

Question

Father bought home in 1985, listing daughter as joint tenant with him. Father dies in 2007.

What is daughter's basis?
-- What father paid in 1985
-- 1/2 of what father paid in 1985
-- stepped up to 2007

Am I correct that, if no stepped up basis, there would be a 15% tax on the LT gain?

Answer 1

Her new basis is 50% of the original basis plus 50% of the value of the property on the father's date of death plus any improvements to the property.

There may or may not be any tax on the gain. If she lives in the home as her principal residence for 2 of the 5 years prior to the sale then she can exclude up to $250,000 of any gain on the sale if her filing status is Single, Qualifying Widow, or Head of Household or $500,000 of her filing status is Married Filing Jointly.

If she doesn't qualify for the exclusion then her gain will be the difference between the net proceeds of the sale less the adjusted basis as described above. The gain will be taxed as a long-term capital gain regardless of how long she owned the home. The rate is normally 15% unless her marginal rate is 15% or less where the rate would be 5%.

Answer 2

1. There is no gain unless you sell the property. When you sell the property, it will be long term capital gain. Also you may be able to exclude gain up to $250,000 if it is your main house and other requirements are met.

2. If the daughter has inherited 1/2 the property, then the daughter's new basis is 1/2 of FMV at the date of death of your father plus 1/2 of the original basis and additions.

Answer 3

The daughter basis for her 50% is the same as before father's death. The daughter gets a stepped up basis to the estate valuation in 2007.

Long term capital gain only occurs upon sale, not transfer. There may have been estate taxes to pay depending upon the father's estate.