A and B are unmarried individuals who live together. They are considering the purchase of a house for $60,000. B would provide the down payment of $10,000. The balance will be financed by a note and mortgage payable monthly over thirty [636/637] years for which both A and B are liable. B will make all subsequent monthly payments for mortgage principal and interest, real estate taxes, and insurance on the property. 

a. Consider the gift tax consequences of the joint tenancy arrangement. Specifically: 

(i) What are the gift tax consequences on a creation of the joint tenancy? Assume B has made no previous taxable gifts. 

(ii) What are the gift tax consequences when B makes the monthly payments, which include the mortgage principal and interest, insurance, and real estate taxes?

b. Consider the estate tax consequences of the joint tenancy arrangement. Specifically:

 (i) What are the estate tax consequences on B’s death and on A’s subsequent death?

 (ii) Assume that A and B died simultaneously. What would be included in the estate of each?

(iii) Assume A and B, both of whom are employed, made the monthly payments, which include the mortgage principal and interest, insurance, and real estate taxes, from their joint checking account. What are the estate tax consequences on B’s death. What if A dies first? 

c. Assume A predeceases B and the fair market value of the house on A’s death equals $120,000 and the balance due on the mortgage is $40,000. For income tax purposes, what is B’s basis in the house? 

Answer rating: 100% (QA)

a Gift Tax Consequences of Joint Tenancy Arrangement i Creation of Joint Tenancy When B contributes 10000 as the down payment for the purchase of the ... View the full answer