October 27, 2022

We get clients asking all of the time about how to hold title, and we usually refrain, this is important to tell your clients, but make sure you have a disclaimer! I have written about the stepped-up basis in the past, but today I want to talk about the stepped-up basis when one spouse dies.

Step-up in basis, or stepped-up basis refers to the adjustment to the cost basis of an asset to its fair market value when the asset is passed on to its heirs upon the death of the benefactor or the predecessor.

So John and Kristy are married and purchased their family home in 1998 for $600,000.00. They have spent over $200,000.00 in improvements, and the house is now worth $1,900,000.00.

If they sell while John is alive, they will have to pay tax on the difference between what they paid, less expenses, less a Tax $500,000.00 exemption. 1.9 sell -200K improvements -600K cost -100K commissions – 500K exemption = $500K taxable gain.

If John dies and they held the property as joint tenants, then the stepped-up basis will take the cost value to $1,250,000.00, and Kristy would have the following deductions -$200K improvements – $100 commissions and $250K Tax Exemption = $100,000 taxable gain.

If John and Kristy held the title as Community property with the right to survivorship, then the stepped-up basis would take the cost value to $1.800,000.00, and Kristy would still have all of her writes offs above that!

She could decide to hold the property for however long and sell for $2,350,000.00 down the road, and she would have a cost basis at $1,800,000.00 and deductions for $200,000.00 improvements of $100K for commissions and her $250,000.00 exemption and still not have to pay any taxes when she sells!

So it’s the difference between holding title as Joint Tenants or Community Property with the right to survivorship!

Please check with your CPA To confirm the above, and I need disclaimers in my life, just like everyone else.

Interest rates have dropped three days in a row! Somebody better call the rate cops and put a stop to this, because we may see mid 6’s if this keeps happening! We are back to where we were on October 7th, but we are still a far cry from where we were earlier this year! Baby steps!!!

• 30-year Government Loans (FHA / VA) is in the 6’s.
• Conventional Loans up to $715,000.00 - 6’s and 7’s
• High Balance Loans $715,001.00-$ 1,072,500.00 are in the 6’s and 7's
• Jumbo loans above $1,072,500 are in the 6’s and 7’s
• 5/1, 7/1, 10/1 Arms are in the 5’s and 6’s
• Bank statement loans - They are available with 10% down again! 7’s + depending on down and credit score.
• Stated income loans – I have one bank with 30% down, but everything else has to be perfect! Interest rates are in the high 7’s - low 8’s.
• 0 down loans are in the high 7’s to low 8’s- 620 credit score min right now! Mid 6’s, for the most part, up to $735,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 7.49% with limited fees – But they get you where you need to go!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I will be around all weekend if you have any questions or if someone interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 xt. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!