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Adding name to title for mother’s house might bring tax woes

Dear Benny: I would like to know if it is possible to add my name to the title on my mother’s house.

She is 89, and I am 69, and we want the house to go to my grandson when we both pass away. Meanwhile, she wants my name on the house.

Can this be done without complications? –Maria

Dear Maria: It’s very easy to add your name on title with your mother, but there may be tax complications.

In order to determine capital gains tax, we use the concept of “tax basis,” which means the original price of the property. If you have made major improvements over the years, that is called the “adjusted tax basis.”

Let me give you this example:

Your mother and father bought the house many years ago for $50,000. Assume for this discussion that no improvements were made. Your parents’ tax basis was $25,000 each. Let’s say your father died when the house was worth $100,000. Your mother received a “step-up” in basis on your father’s half of the property, which means that her basis is now $75,000 (i.e., $25,000 for her half and now $50,000 for her husband’s half).

If your mother puts you on title to the house, that is considered a gift. And the basis of the person giving a gift becomes the basis of the gift receiver. So if she gives you half of the house, your basis will now be $37,500.

Let’s further assume that the house will be worth $500,000 on your mother’s death. Once again, you get the stepped-up basis, or $250,000 on her half of the property. Add that to your basis and your tax basis is now $287,500.

If you decide to sell — and have not owned and lived in the property for two years out of the five years before sale — you will have to pay capital gains tax. Even if you sell it for $500,000, ignoring selling costs such as real estate commissions, you will have made a profit of $212,500 ($500,000 minus $287,500). The current federal tax rate for capital gains is 15 percent, so you will have to pay $31,875.

But if you inherited the property on your mother’s death and sold it for the value at the time she died, you would not have to pay any tax at all. In other words, your tax basis is increased by the “step-up” concept; i.e., the value of the property on the date of death.

However, in your case, because you want the property to go to your grandson, why not just have a last will and testament drawn up for your mother, whereby she specifically designates him to inherit the property?

I see no value in adding your name to the title. It merely complicates matters. Talk with an attorney to get specific information relating to your own state laws.

Dear Benny: If a person owns a duplex titled in his and his wife’s name and two other duplexes titled in a corporation’s name, would he come under the fair housing rules on the duplex titled in husband and wife’s name? –Jean

Dear Jean: I must honestly tell you that I don’t know the answer to your question. Although I have been involved in a number of Fair Housing Act issues, they generally involved condominium associations, which clearly are covered under the act.

Oversimplified, that act requires property owners to make reasonable accommodations for consumers who have special needs, such as having a Seeing Eye dog when the house rules permit no pets, or, in one case I had, having a hot tub for medicinal purposes when the bylaws specifically prohibited that.

To try to find an answer to your question, I went to the Department of Housing and Urban Development’s website as that agency is the primary enforcer of the act. But typical of government agencies, they did not give a direct response. Here’s what it says:

“The Fair Housing Act covers most housing. In some circumstances, the act exempts owner-occupied buildings with no more than four units, single-family housing sold or rented without the use of a broker and housing operated by organizations and private clubs that limit occupancy to members.”

So I just don’t know the answer and welcome input from readers.

Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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