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Will there be tax implications when you have joint tenants with right of survivorship?

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Q: In 2008, I paid off my parents’ mortgage. In exchange, I was placed on the deed as joint tenants with right of survivorship, with the expectation that I was to be repaid when the house was sold. I never lived in the home.

Fourteen years later, my step dad has passed away and my mom has just moved to a retirement home. We plan to sell the house for $175,000, repay the $60,000 that I spent, and use the remainder to care for my mother for the remainder of her life.

What are the tax implications for my mother and me? I never took advantage of any tax benefits of ownership and any bills for the home were paid by my mother and step dad.

A: You were incredibly kind to step up and help your mom and step dad when they needed it most. By paying off the mortgage, you freed up cash flow so that they could do more to enjoy their lives. And, undoubtedly, they slept better at night. A win-win situation.

In exchange, they put you on the deed as a joint tenant. As a joint owner, upon their deaths, you would automatically become the sole owner of the home. We assume this was to protect you in case they died: you’d get the home.

In essence, you bought one-third of the property for the $60,000 you contributed to paying down the mortgage. If your step dad was still alive, you three would be selling the property for $175,000, or less than the amount you paid for your one-third share ($60,000 x 3 = $180,000). If life had played out that way, you wouldn’t run into any tax issues. There would be no profit and no loss, and it sounds as though you didn’t earn any interest on your money.

However, somewhere over the years, your step dad passed away. When he died, you and your mother may have inherited his share of the property equally. Being joint tenants with rights of survivorship would likely make you equal owners of the property. So, when you sell the home, your share is half of the $175,000, or $87,500.

Up to this point, if you sell the home for $175,000 and you put in $60,000, you’d have “earned” $27,500 from the sale of the property. If, however, you inherited half of your step dad’s share of the property, you would have inherited your step-dad’s share at its current market value on the day of his death. If we assume the property hasn’t appreciated much from that point, then there hasn’t been any increase in the value of your share, and you likely don’t owe taxes once the home is sold.

Your mom, likewise, is in a good place. You didn’t disclose how much she originally paid for the property, but even if she bought it for a rock bottom price 30 years ago, the home will sell for less than the $250,000 she is entitled to keep tax free from the sale of her primary residence.

The Internal Revenue Service has a rule that states that a homeowner may keep up to $250,000 (up to $500,000 if you’re married) in profits from the sale of a primary residence, as long as the owner has lived in the home for two of the past five years. The owner may exclude the cost of purchase, the cost of sale, and the cost of any material or structural improvements made over the time they lived in the home. (You can read more in IRS Publication 523, Selling Your Home.)

For example, let’s say your mom and step dad bought the house for $150,000, and were selling it for $750,000, and you aren’t in the picture. The profit on the property might seem to be $600,000, or more than the home sale exclusion. But if the commission was 6% on the sale, they would subtract $45,000 from the $600,000. And, if they spent another $55,000 over the years replacing the roof, water heater, and adding on a new deck, they could have subtracted that as well. That would bring their net profit to $500,000, which they could keep tax free.

So far so good, but you still have to remember that in some states you may have to pay a state tax on the sale of the home. That’s because some states don’t follow the IRS exclusion rules for primary residences. In your situation, it seems that you will likely have no federal income taxes to pay. Given the sales price of the home, your mom shouldn’t have any federal income taxes to pay as well.

As always, your tax preparer can provide specific advice based on your own tax situation. Good luck and good health to your mom.

(Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact Ilyce and Sam through their website,


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