Case 1: Tim and Sam are brothers. They bought a rental property for $800,000.
Tim contributed $600,000 and owns 75% interest. Sam contributed $200,000 and owns 25% interest.
1. What is the type of joint ownership?
2. If Tim dies, will his share pass to Sam automatically? Why?
3. Can Sam sell his share without Tim’s consent?
4. Is there any gift tax in this case? If yes, how much is the taxable gift?
Case 2: Tim and Sam are brothers. They bought a rental property for $900,000 and own it as JTWROS. Tim contributed $600,000 and Sam contributed $300,000. Tim dies when the property is worth $1.2 million.
1. What percentage of interest does each of them own?
2. What is the amount of taxable gift?
3. If Tim dies, will his share pass to Sam automatically? Why?
4. What is the amount that will be included in Tim’s gross estate?
5. What is Sam’s cost basis of the property now after Tim’s death?
6. If Sam sells the property for $1.5 million after Tim’s death. How much is his capital gain on this transaction? How much is the capital gain tax assuming his income tax rate is 39.6%?