“My lawyer has meticulously created my will to insure that she — or our son if she predeceases me — will receive all the properties.” (Photo subjects are models.) – Getty Images/iStockphoto
Thanks for all the great advice you have given over the years.
My situation is a bit of an odd one. My wife and I have been best friends since we were in our teens (we are 45 now). In 2008, before our friendship turned romantic, my wife was in a tight spot. She broke up with her boyfriend of eight years. She had racked up quite a bit of debt, and had been newly laid off. I offered her to move in with me, and 16 years later we have a 4-year-old. We are happier than we have ever been.
Unfortunately, when she moved in with me, she was a joint owner of a house with her ex in the greater Las Vegas area which, as you know, was hit the hardest in the 2008 property bubble and burst. Their house was underwater by several hundred thousand dollars. Her ex forged my wife’s signature on refinancing documents and let the house go into foreclosure two times (both times they somehow retained the house), and he has since filed bankruptcy.
I have always been very good with money. Within four years of moving in with me, I taught my wife much of what I knew, and she managed to pay off all of her debt (other than the house). In 2012, I bought our first house with cash. Since then, I bought a second house (with cash) on the same street for my father, who has since passed away. I also inherited my father’s house in Pennsylvania and refinanced his loan in 2020 at less than 3%.
If I die and she sells the properties, would she have to pay a lot of capital-gains taxes, especially on the houses we don’t live in? I bought our house for $125,000 and it’s now worth over $400,000; am I correct in thinking that I could put her name on that deed and still have $225,000 (plus capital investment) before she would have to pay capital gains? Or would it be better to let it go into an estate and have it step up?
Financial stability is a good foundation for a happy, healthy and stress-free relationship. – MarketWatch illustration
Your wife has been through the mill and you came along at an important time for her. It’s reassuring to know that there are good people in the world who reach out to help others, and that your friendship turned into something deeper and you now share a child together. Financial stability is a good foundation for a happy, healthy and stress-free relationship. Conflicts over money can be the death knell for relationships, but you turned that on its head.
And so to your question. Generally, it’s better to leave immediate family members off the titles to property if you intend to leave those assets to your family in your will. If you put your wife on the deeds of these houses, she would pay capital-gains taxes based on the original price you paid for these properties rather than the fair market value of the properties upon your death, assuming you predecease your wife.
If your wife decided to sell your home, up to $250,000 in profit is excluded from capital-gains taxation, according to the Internal Revenue Service. Married couples have an exemption of $500,000 in profit from a sale before capital-gains taxes are applied. Despite the rise in house prices over the last several decades, these exclusion amounts have effectively remained unchanged since 1997.
Putting your wife’s name on the title deeds would have a big impact on the amount of capital gains she paid, says John Sweeney, an associate at law firm Offit Kurman’s estates and trusts practice group in Philadelphia. “For the Pennsylvania property, there would be a capital-gains tax of 3.07% in addition to the federal capital-gains tax,” he adds. “However, any property passing to your wife in Pennsylvania would have an inheritance tax rate of 0%.”
