Estate Tax

[Ggianesses]

What is the name of your state (only U.S. law)? NY
If a parent dies and has only one of her four children's name on the deed of her co-op, can that child then split up the proceeds of the sale of said co-op between him and his other three siblings equally without having to pay a tax ?

 

[curb1]

Yes. The exclusion for federal gifting for Years 2014 and 2015 is $14,000 to each recipient. Or, if you are talking about a lot of money you will be able to gift considerably more ($5,430,000) federal tax free during your lifetime and filing Schedule 709 (United States Gift (and Generation-Skipping Transfer) Tax Return. A possibility would be to gift $14,000 in 2015 and another $14,000 in January (or any month) in 2016 to each recipient.

 

[LdiJ]

Yes. The exclusion for federal gifting for Years 2014 and 2015 is $14,000 to each recipient. Or, if you are talking about a lot of money you will be able to gift considerably more ($5,430,000) federal tax free during your lifetime and filing Schedule 709 (United States Gift (and Generation-Skipping Transfer) Tax Return. A possibility would be to gift $14,000 in 2015 and another $14,000 in January (or any month) in 2016 to each recipient.

Gift tax isn't the only issue to be addressed.

Since the person was added to the deed, they do not receive a stepped up basis. The property was gifted to them rather than inherited, so their basis is the parent's basis. That means that the sale of the house is subject to capital gains tax, which could possibly be considerable.

The "child" needs to see a tax professional before doing anything at all.

 

[FlyingRon]

It will definitely take some more information here.

If the property was deeded to her jointly with survivorship rights with the deceased then as pointed out, estate tax is not an issue. The property passed tot he joint owner without probate. Half the property steps up in basis at the time of death, but the gift portion retains the (lower) basis of the giver.

Now the amount of money GIVEN from the surviving owner to the others IS subject to gift tax reporting if it's over the $15K (or whatever it is now) limit. Of course, as pointed out, unless we're talking about proceeds in excess of millions, gift tax isn't likely due.

If the property was only held as tenants in common, different things happen. The survivor has the ownership of her half (with the basis of the giver) but the other half becomes part of the estate. That half steps up in basis, but this transfers by the probate rules (either guided by the will or the laws of intestate succession).

Note the capital gain is independent of the PROCEEDS of the sale. The capital gain is the difference between the purchase price and the sales price (minor certain other adjustments). It could be less or in some cases MORE than the amount of money netted after paying off the mortgage.

 

[LdiJ]

It will definitely take some more information here.

If the property was deeded to her jointly with survivorship rights with the deceased then as pointed out, estate tax is not an issue. The property passed tot he joint owner without probate. Half the property steps up in basis at the time of death, but the gift portion retains the (lower) basis of the giver.

Now the amount of money GIVEN from the surviving owner to the others IS subject to gift tax reporting if it's over the $15K (or whatever it is now) limit. Of course, as pointed out, unless we're talking about proceeds in excess of millions, gift tax isn't likely due.

If the property was only held as tenants in common, different things happen. The survivor has the ownership of her half (with the basis of the giver) but the other half becomes part of the estate. That half steps up in basis, but this transfers by the probate rules (either guided by the will or the laws of intestate succession).

Note the capital gain is independent of the PROCEEDS of the sale. The capital gain is the difference between the purchase price and the sales price (minor certain other adjustments). It could be less or in some cases MORE than the amount of money netted after paying off the mortgage.

You went into more depth than I did, but essentially this re-emphasizes the fact that the "child" needs to consult a tax professional before doing anything.

 

[Ggianesses]

The one child that was on the deed was on the deed from the beginning when the co-op was purchased. Reason being mother needed help obtaining a mortgage which is now paid off. From my understanding he would then be 100% owner after her death. Could he then sell the co-op and split the proceeds with the other three children of the deceased without having to pay capital gains or gift taxes.?

 

[FlyingRon]

The one child that was on the deed was on the deed from the beginning when the co-op was purchased. Reason being mother needed help obtaining a mortgage which is now paid off. From my understanding he would then be 100% owner after her death. Could he then sell the co-op and split the proceeds with the other three children of the deceased without having to pay capital gains or gift taxes.?

The deed is not like some club membership. Each person has some ownership either an undivided interest (with joint tenancy) or a divided one (tenants in common).

Being on the deed doesn't tell us what we need to know. Unless the words "Joint Tenancy with Rights of Survivorship" or similar wording appear in the grantee of the deed, the ownership was a most likely a 50/50 divisible share.
It does NOT automatically transfer to the surviving tenant. The half interest by the deceased goes to the estate.

If you sell the property for more than the basis there is capital gains to be paid no matter what the deed says. The only thing that remains to be figured is what the basis is. The person on the deed retains the basis paid when the property was purchased (as adjusted for capital improvements and sales costs). There's an exclusion of up to $250,000 if the person lived there as the principal residence for 24 out of the past 60 months, but otherwise the tax is DUE.

The basis of the share owned by the deceased steps up to the value at the time of the death, but even that may be below the sales price in an appreciating market.

So, we still have not sufficient information to answer the question.