Real Estate Frequently Asked Questions
A life estate is an interest in real property that is created in a variety of ways. The person holding the “life estate” has a lifetime interest in the property. The life tenant has the right to exclusive use and occupancy of the property during his or her lifetime. The life tenant is responsible for all expenses of the property, including taxes, insurance, utilities, and normal costs of maintenance and upkeep. The life tenant also is entitled to the net rents from the property, as well. Upon the death of the life tenant, the property passes to another person or persons – the “remaindermen.”
While it is common for people to wish to “add someone” to their deed, there may be tax consequences associated with transferring real property in this manner, and it may cause loss of real property exemptions and other long term care planning complications.
Yes, New York State imposes a real estate transfer tax on conveyances of real property where the consideration exceeds $500. The tax is computed at a rate of two dollars for each $500, or fractional part thereof, of consideration. So, for example, if you sell your house for $200,000, you will pay a total tax of $800 ($200,000/500=400 x 2). This tax is paid when the transfer tax forms are recorded in the County Clerk’s Office.
In addition to the transfer tax, you may also be required to pay federal capital gains tax. However, you may qualify for a capital gains exemption if the house is your primary residence and you have occupied the house for at least two of the last five years. If this is the case, a single person qualifies for a capitals gains exemption on the first $250,000 of realized profit. A married couple, filing jointly, can claim a $500,000 capital gains exemption. The capital gains exemption can be utilized every two years.
These three phrases refer to different ownership interests in real property.
A tenancy in common is a type of shared ownership of property, whereby each owner owns a share of the property. These shares can be of unequal size, and can be freely transferred to other owners both during life and at death. All tenants in a tenancy in common have an equal right to occupy and use 100% of the property, regardless of the size of their share. For example, Joe may own 40% of the property; Sue may own 35%; and Beth may own the remaining 25%. If Joe were to pass away first, his 40% would be distributed to his heirs or pursuant to his Last Will and Testament. Also, if Joe wished to sell or give away his 40% during his life, he is free to do so. This is distinguished from the other types of ownership, described below.
A joint tenancy is a type of shared ownership of property, in which each owner has an undivided interest in the property. This type of ownership creates a right of survivorship, which means that when one owner dies, the surviving owners share the deceased owner's interest. Joint tenancy can be between two or more persons, but they each have an undivided interest. As a result, there will not be a percentage or fractional interest allocated to each owner. An owner who is a joint tenant has the right, unilaterally without permission from the other owners, to sever the joint tenancy. After severing the joint tenancy, the ownership becomes ownership as tenants in common. Then, each owner is free to sell or assign his or her ownership interest. However, if the joint tenancy is not severed, then, upon one joint tenant’s death, the remaining joint tenant becomes the sole and absolute owner. The deceased joint tenant’s interest terminates at death.
A tenancy by the entirety is a type of shared ownership of property available only to married couples. Similar to a joint tenancy, spouses who own property as tenants by the entirety each have an undivided interest in the property, equal right to occupy and use 100% of the property and a right of survivorship. Tenants by the entirety cannot transfer their interest in the property without the consent of the other spouse.