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[Transcript]

John: (00:05)
Hey, this is John Fraker with Keller-Williams Bay Area Estates. Today we’re going to be talking about a very important subject for homeowners right here in the Bay Area, and it’s a mistake that I’ve seen clients make repeatedly that could potentially cost the hundreds of thousands of dollars, and that mistake is holding title, husband and wife, as joint tenants in a property rather than community property. Why is that a problem? Well, for capital gains purposes, if husband and wife own the property together as community property and one spouse dies, it will eliminate all of your capital gains. On the other hand, as you own it as joint tenancy, you’re only going to eliminate half of your capital gains exposure on the death of the first spouse.

John: (00:44)
Why is that important? Well, let me give you an example of a client that this happened to. So here’s a family that I’ve been working with for many years, uh, and their parents were in their 80s. They had bought their first house together in the 1960s when Lyndon Johnson was still president, and they bought their house in Sunnydale for about $20,000, if you can imagine. Today, as you can imagine, it’s worth more than two million dollars, and a couple years ago they came to me, and the father, the husband had just passed away. And they found out, only after talking with me, that the deed said husband and wife as joint tenancy, right of survivorship. The problem is that would only eliminate half of their capital gains, so when you look at their situation paying $20,000-$25,000 for a house and wanting to sell it for two million, you still have a potential six-figure tax bill to deal with.

John: (01:30)
Now, had they owned that same property as community property on the deed, it would have eliminated all of the capital gains. So this family came to me and said, “Well, we’d really like to sell this house because mom can no longer live there. She’s in a skilled nursing facility, and more importantly, that skilled nursing facility is going through maybe $10,000-$12,000 a month out of our pockets, and mom didn’t have very many other assets other than her house in Sunnydale, so we’d really like to be able to sell it so we have the money for her healthcare.” So had they owned it as community property, they could’ve sold it the next day after the father passed, and they’d have paid no capital gains tax.

John: (02:05)
Obviously, I’m not going to give you legal advice on what’s right for your family, but I do recommend if you would like to take a look at your deed and see if it’s appropriate, please feel free to give me a ring, or I can refer you to a CPA or an attorney who can give you proper advice for your family. Again, this is John Fraker with Keller-Williams Bay Area Estates. Thanks and have a wonderful day.

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