Should You Change The Title On Your House?

If you’re married and the two of you own your house, is your legal title recorded as “joint tenants” or “community property”? If you bought it recently, odds are good it’s “community property” (and it should also include “with right of survivorship”). However, if it’s an older purchase and the title says “joint tenants,” you could be in for a surprising tax burden after one of you dies.

If the home is held as community property and one of you dies, the IRS says that 100 percent of the home’s tax basis will be readjusted or “stepped up” to the fair market value upon the date of death. You effectively get to pretend the house was purchased at the date-of-death value.

Here’s the flip side: If your home is held in joint tenancy, only half of the original value – the half belonging to the deceased spouse – gets stepped up to the date-of-death valuation.

Ultimately, though, this really only matters under certain conditions—if the surviving spouse plans to stay in the house for at least a couple of years, and if he or she gains less than $500,000 when selling it, then it will be excluded from any capital gains tax and the title issue is moot. Taxes sure are fun, aren’t they!

“Personal Finance Notebook: Couples should check the legal title to their residence” [Sacramento Bee]
(Photo: Getty)

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  1. HeyThereKiller says:

    Given the content of the article, I’d have to say that is one of the most depressing photoshopped pictures i’ve seen on this site.

  2. timmus says:

    I like the clip art photo… it reminds me of the Onion story called “Millions of Home Buyers Achieve Dream of Loan Ownership” or something like that… unfortunately I can’t seem to find the damn article on their site.

  3. Pylon83 says:

    The proper terms are “Joint Tenants” where survivorship is inherent, and “Tenants in Common” where survivorship is not possible. There is no “Community Property” title. Married Couple can own a home as “Tenants by the entirety” in which the couple is treated as a single entity owner, and survivorship is inherent.

  4. wordsmithy says:

    The article doesn’t address trusts. My husband passed away earlier this year. We rushed get our “affairs in order” and were strongly advised to transfer the house to a trust in order to help with future taxes for the kids.

    I’m still in a fog and now read The Consumerist regularly to help make me an informed consumer.

  5. erratapage says:

    There is no right answer to this question, since laws change from state to state. The answer to this question may well be part of a complete estate plan. Please see an attorney!

  6. Gump says:

    Pylon83 is absolutely correct. Do not trust this article for any purposes, because the terminology is ridiculous (maybe if pertains to some particular state, I don’t know) If you own property with someone else, whether you are married or not, you should absolutely consult with a lawyer when contemplating title change in the face of estate issues, medicaid planning, bankruptcy, foreclosure, fractional sale, or pretty much anything. I have made a lot of money fixing stupid things that people did with their property 15 years ago because their financial planner or brother-in-law told them to file a new deed. More often than not there’s nothing I can do though. I would rather tell you how to avoid the problem in the first place.

    /rant

  7. AnneCA says:

    Not every state is a community property state. I believe the article is correct as to community property states — you can absolutely hold title as community property if you’re married — but I’m guessing pylon83 and Gump don’t live in community property states. Although I wholeheartedly agree with their advice to consult with a lawyer on this.

  8. Pylon83 says:

    @AnneCA:
    A “community property state” and a title/deed to a home saying “community property” are two entirely different things. Joint Tenants, Tenants in Common, and Tenants by the Entirety are basic property terms. AFAIK, there is no such thing as holding a title in “community property”. The “community property” simply refers to how assets will be disbursed upon dissolution of marriage. Think of it this way. Just because the car you own only has your name on the title doesn’t mean that your wife/husband doesn’t have a claim to it upon divorce if you live in a community property state. Simply, they are two entirely different concepts.

  9. Antrack says:

    I think I’ve posted this before, but I think it would be really wise for Consumerist to have an attorney on staff as an editor at least part-time to avoid posts such as this. This post is really bad information (as Pylon83 has described) for most people in most states, and just bad information for people who live in one of the few community property states.

    Seriously, there are many law school graduates who work as freelancers or bloggers now, and any of them could mistakes like this before you post.

  10. Pylon83 says:

    @Antrack:
    I agree whole-heartedly. There have been numerous posts over the time I’ve been reading here that not only purport to give legal advice (a bit of a no-no), but also give TERRIBLE advice that could end up screwing someone over.

  11. hollerhither says:

    @Antrack:
    ITA.

  12. AnneCA says:

    @Pylon83: “AFAIK, there is no such thing as holding a title in ‘community property.'”
    In CA there is. CA Civil Code Sec. 682.1. (I should know, because it’s how we hold title to our house) And the SacBee, from whence the article came, is a CA newspaper. The advice they offer is very good advice FOR A CALIFORNIAN, but may well not apply at all outside of the state. I completely agree that this kind of stuff shouldn’t be just posted for national consumption without some warning, caveats, etc.

  13. alice_bunnie says:

    Actually, this does bring up a good point for me that I will definitely need to look into. We bought our house when we weren’t married and the deed was “joint ownership with rights of survivorship”, but we did get married later.

    We planned to make a trust instead of a will (and we’ve needed to do that for 13 years since we have 4 children) so I guess we’ll do all that legal stuff at the same time. Can’t wait to see that legal bill. :/

  14. Pylon83 says:

    @AnneCA:
    Good point. From the way that statute reads, it seems that it’s basically a secondary name for Joint Tenancy, as it uses the same procedures, etc. that joint tenancy does.

  15. Bryan Price says:

    My wife has owned our house for 16 years. We were married 6 years ago. That might tend to do strange things tax wise I guess. :-O That’s interesting to know and think about.

  16. melissasaurus says:

    Community property is a legal concept applicable in several states. It (very) basically states that all property acquired during the marriage is considered owned 50/50 by each spouse. When one spouse dies, the other, usually, gets all of the community property.

    Joint tenancy has nothing to do with marriage status. When a joint tenant dies, the other tenant automatically gets 100% ownership of the property – and the property does not pass through probate.

    Tenancy in common – each tenant only has a right to 50% ownership, without a right of survivorship. When one tenant dies, his 50% share passes through his probate estate; the other tenant’s half is unchanged.

    A joint tenant cannot leave his share to another by bequest because it automatically disappears on his death. A tenant in common can leave his 50% interest to whomever he pleases.

    There are very complicated estate tax issues with each situation.

  17. Taed says:

    How would one change the title on our house? We live in Santa Clara County, CA. I thought I’d find some standard forms on this web site ([www.sccgov.org]), but no go. Surely, I expect to visit a notary, but I wouldn’t think I’d have to go to a lawyer. Anyone?

  18. Gump says:

    @Taed:

    Glad to see you’re paying attention. Just file whatever, I’m sure it’ll be fine.

  19. Pylon83 says:

    @Gump:
    I think that was the first time I’d laughed all day.

    @Taed:
    3 Steps:
    1. Read the above comments
    2. Stop getting legal/estate planning advice off the internets and the google
    3. Call an attorney that specializes in Real Estate/Estate Planning.

  20. Gump says:

    @Pylon83:

    Glad to oblige, my esteemed colleague.

  21. How about we make a map, like jalopnik does, that shows all of the states and has color codes to show if they are “community property” states or not?

  22. Taed says:

    I read everything above again, and didn’t get any closer to the HOW question. If I want to change the title on my car to add my wife, I just go to the DMV and fill out a form (not even a notary is required). I was expecting something similar for my house, and in fact, I know that it’s that simple since I did it before (but was provided with the form).

    Specifically, the reason for my question is not actually in reference to the article above per se. My house originally had the title with both of our names on it with rights of survivorship (we live in California). However, when we refinanced, there was a problem with my wife’s credit (it was fine on 2 of the agencies, but Equifax had no record of her existence for reasons we don’t understand), so at the last moment, we were “forced by way of expediency” to fill out a form and get it notarized to change the title to just my name. That’s it, just a form and a notary — took all of 3 minutes. So, now I want to undo the same change to back to what it was originally, and so I need another (blank) form. The article reminded me of that item on our “to do” list.

  23. Gump says:

    @Taed:

    The form you very likely filled out was a deed. The title company probably generated it. In my state that would have been totally unnecessary.

  24. Pylon83 says:

    @Taed:
    The HOW question should only be answered by a lawyer. If you try to do it on your own and mess up the wording, you could cause real problems. There are lots of “magic words” that have to be used in deeds to make sure that they don’t have to be litigated in order to figure out what is going on. Doing this kind of thing on your own, without knowing what you’re doing is asking for trouble. See the post above by the real estate attorney who makes most of his money fixing screw-ups from people who try to do this stuff alone.

  25. Pauliegirl says:

    I appeciate all the comments but there is one item that I haven’t seen addressed (unless I missed it).

    If I am in a relationship with my significant other, what happens if we purchase a house jointly and one of us becomes deceased? Would my half go to my heirs or would it all default to him? Would I be better off putting the house entirely in my name? And if that were the case, would he be entitled to any portion of it? So many questions!!!!