Real Estate Law

In a “condo”, you legally own a particular unit in a multiple unit structure of the building.  Under a typical arrangement, you have a share and a right to use common areas such as hallways, elevators, gardens, swimming pools, and club house within that structure.  You pay monthly payment to an “association” for maintenance expenses of the common areas. The association is typically run like a corporation.

In a “co-op”, you do not own your own specific unit in the building but own stock in the corporation that actually owns the building and all the apartments. You lease your apartment from the corporation according to a formula based on the unit’s size.  As a shareholder, you have a say in electing the Board of Directors who manage the cooperative.

The deed gives you formal title in exchange usually for a specified amount of money. The transfer of interest in real property is not complete until the deed is delivered to you.  The deed should be recorded immediately with the county clerk in the county where the property is located.  By recording the deed, you give notice to all future potential buyers of that property that you now have an ownership interest in that particular piece of real property.  Title insurance typically performs this function to determine whether any defects occurred in prior conveyances and transfers.  If so, such defects may then be pointed out and excluded from their coverage.

Capital gains exemption: Once you sell your principal residence, you may exclude up to $250,000 ($500,000 for married couples) from any realized capital gains.  In order to qualify, you must meet certain requirements: among other things, you must have lived in that home for at least two of the five years prior to the sale, and not have excluded gain from the sale of another home two years prior to the sale.

The person acquiring the property through quit claim, receives whatever present interest the grantor has in that property. Unlike a warranty deed, a quitclaim deed carries with it no express or implied covenants or guarantees.

Big pitfall for income taxes.  If you quit claim your property to your children, you will be leaving them a huge tax bill compared to if they inherited the property via your death.   If you would have transferred the property via death the income tax on the sale of the house normally the day after the receipt of the inherited property would be zero.  Compared to as much as 20% on the difference between the value on the date of the gift and the date of the sale.

While sharing title to property may avoid probate after your death, naming “joint tenants” may have a number of adverse consequences. In effect, adding a joint tenant to your home deed means that you have now gifted a portion of that property to those named. And when you make gifts in excess of $14,000 in value within a calendar year to someone other than a spouse, the IRS requires you to file a gift tax return, and in some cases pay gift taxes. When gifting an interest in your home to anyone, you also are endangering your own financial security.  If your new co-owners have creditors or are involved in a divorce, your assets will be at risk.  Furthermore, such a transfer may jeopardize certain property tax and other exemptions you enjoy as a senior, veteran, or homesteader.

A better idea is to create a Living Trust and name your children as beneficiaries of the Trust after you die. This has the advantage of avoiding probate, yet it gives you total control of your house prior to transferring ownership. You can also change beneficiaries if you so desire, and also provide for the circumstance if one child predeceases you.