Quit Claim Deed/Tax Reprecussions

What is the name of your state? California

Hi,
I searched for a long time but did not find my question already. Apologies for any duplicated efforts. Also, thanks so much to those folks who know about this stuff and help us out.

My fiance and I decided to buy a house together (due to close escrow in October, so no papers are finalized yet). Because of his credit score, we decided to put the mortgage in just my name and figured we would file a quit claim deed right behind the closing so that we would technically own the home together even though the mortgage doesn't have his name on it.

We won't be married for at least another year, so we still file our taxes separately. Am I screwing up the tax benefits associated with buying a house by adding his name to the title?

We're both first time home owners, so I know nothing about this.
Much Thanks!!

[celitag]

we did the same thing with our house... from my understanding since you file seperately you can split the prop. tax & the mortgage interest...

[divgradcurl]

My fiance and I decided to buy a house together (due to close escrow in October, so no papers are finalized yet). Because of his credit score, we decided to put the mortgage in just my name and figured we would file a quit claim deed right behind the closing so that we would technically own the home together even though the mortgage doesn't have his name on it.

You need to check with your mortgage lender to make sure your mortgage does not have a clause requiring immediate payment in full if ownership changes. Is there any reason why you can't have your fiance on the deed when you close? The mortgage is seperate from the title -- some mortgage companies will aloow it, some won't, but it doesn't hurt to ask.

we did the same thing with our house... from my understanding since you file seperately you can split the prop. tax & the mortgage interest...

Although you can likely get away with this, this is technically not correct. Since only one person has the liability for the mortgage, only that person should be able to take the tax deduction for mortgage interest.

One other thing -- although you probably don't want to think about this now I'm sure, if you do put your fiancee on the deed, you should consider the consequences to the other should one of you die. Unlike community property, if you put his name on the deed and he dies without a will, then his family gets his share of the house, not you -- so if you do go this route, then you should consider thinking about estate planning as well, or at least a will.

Finally, because the house is being acquired prior to marriage, it will not automatically become community property once you are married. However, once you are married, you can transmute the house into community property at any time.

Thank you!

[celitag]

One other thing -- although you probably don't want to think about this now I'm sure, if you do put your fiancee on the deed, you should consider the consequences to the other should one of you die. Unlike community property, if you put his name on the deed and he dies without a will, then his family gets his share of the house, not you -- so if you do go this route, then you should consider thinking about estate planning as well, or at least a will.



***in my opinion "joint tenants" is better that community property cause the spouse or partner has full rights if one passes...


Although you can likely get away with this, this is technically not correct. Since only one person has the liability for the mortgage, only that person should be able to take the tax deduction for mortgage interest.

***you are correct, but if a person has receipts for paying the mortgage, they can "technically" use the interest...

[divgradcurl]

***in my opinion "joint tenants" is better that community property cause the spouse or partner has full rights if one passes...

That's true. However, if the property is held as a joint tenancy, when the first joint tenant dies, the other joint tenant automatically gets the other person's share with the other person's basis -- which means that when the owner finally decides to sell, the entire home is taxed on the gains made since the home was originally purchased.

However, if the property is community property, the surviving spouse in any event is entitled to 3/4 of the house, and can get the entire house by will or intestacy. Further, the part of the house that is transferred to the surviving spouse gets a "stepped-up" basis, which means that when the surviving spouse sells, the half he or she held onto the whole time will be taxed on the profits from when the house was purchased, just like with joint tenants. However, the other 1/4 ot 1/2 which was transferred in probate will be taxed on the profits between the time of sale and the fair market value at the time of the decedent spuse's death.

This can be a significant tax advantage, espcecially in certain parts of CA where home prices can change dramatically.

[abezon]

Originally Posted by divgradcurl

That's true. However, if the property is held as a joint tenancy, when the first joint tenant dies, the other joint tenant automatically gets the other person's share with the other person's basis -- which means that when the owner finally decides to sell, the entire home is taxed on the gains made since the home was originally purchased.

However, if the property is community property, the surviving spouse in any event is entitled to 3/4 of the house, and can get the entire house by will or intestacy. Further, the part of the house that is transferred to the surviving spouse gets a "stepped-up" basis, which means that when the surviving spouse sells, the half he or she held onto the whole time will be taxed on the profits from when the house was purchased, just like with joint tenants. However, the other 1/4 ot 1/2 which was transferred in probate will be taxed on the profits between the time of sale and the fair market value at the time of the decedent spuse's death.

This can be a significant tax advantage, espcecially in certain parts of CA where home prices can change dramatically.

Incorrect. Under estate tax laws, any property held in joint tenancy is fully included in the decedent's estate at fair market value & the surviving joint tenant receives a 100% step up in basis. This includes community property states. The 1/2 step up occurs when 2 people own property as tenants in common & the decedent wills his/her 1/2 to the other owner.

Before you add his name to the deed, you need to sit down & discuss how expenses will be paid, how much each will pay down & through the months, & what happens if you split up (who gets to buy the other out? at FMV or at original purchase price?), and how to resolve conflicts over what will be done (repairs, when to put on a new roof ot when to sell). Write down your agreement & have it signed, dated, & notarized, & each keep copies.

Depending on how much $$ you put down, quitclaiming 1/2 the house to him could trigger gift tax issues. If you give him more than $11,000 of equity in one year, you'll have to file a gift tax return. If he pays part of the downpayment, be sure to document it for future reference.

You don't want to split the mortgage interest & tax deductions. Have one person claim all the itemized deductions (the higher income person), while the other person claims the standard single deduction. This will maximize your tax savings. If you have kids, have the higher person claim head of household while the lower income person claims the itemized deductions.

[divgradcurl]

I reread what I wrote above -- I don't know what I was thinking when I wrote that, because it is just wrong. I should have been talking about "community property with rights of survivorship" and compairing THAT with joint tenancy (which I got wrong up above anyway), and not comparing pure community property with joint tenancy.

[abezon]

As with anything in law, the answer is, "It depends."

1. The general rule is that 100% of FMV of joint tenancy property is included in the estate of the first owner to die & the surviving owner gets a full step up in basis.

2. An exception occurs when the joint owners are spouses -- then 1/2 the FMV is included in the dedcedent spouse's estate & the surviving spouse gets a 1/2 step up in basis. This is called a "qualified joint interest".

3. The exception to the excpetion is in community property states. In a CP state, any community property held by spouses receives a full step up in basis, even though only 1/2 the FMV of the property is included in the estate of the first spouse to die. IRC 1014(b)(6). This rule also applies to property not held as JTROS, as long as state law classifies the property as community property. Rev Rul. 87-98.


For our couple, when they're not married, the general rule applies & 100% of the house is included in the estate of the first to die. When they do get married, they can use option 3, as long as they execute a community property agreement that the house is CP. Even without a CP agreement, the estate may be able to opt out of the qualified joint interest rule & include the full FMV in the estate of the first JT to die, but I'm not sure. Don't have time to look it up now.