On January 20, 2022, Sand Hill's Chief Investment Officer Brenda Vingiello, CFA, joined the CNBC Halftime Report panel once again to discuss recent market volatilityread more
Capital Gains in Joint Ownership Accounts – Unmarried Parties
November 2, 2021
Joint ownership of an account can complicate how capital gains are dispersed and who is responsible for the taxes involved. Adding in the current tax change proposed by President Biden, it is important to understand the impact to tax rules and regulations regarding joint ownership. Note that this article is focused only on unmarried parties. Married parties fall under an entirely different set of tax ramifications.
Note: President Biden had been suggesting a tax increase to 39.6% on long-term capital gains for those earning over $1 million in his Build Back Better bill. This provision appears to have been scrapped from the most recent version of the bill but as of the date of this article’s publication, the bill is not yet finalized and changes around this topic could still unfold.
To illustrate, if you make $900,000 in wages and $200,000 in capital gains, the $100,000 that falls over the threshold will be taxed at the current long-term gain rate, and the other $100,000 will be taxed at your ordinary income rate. This becomes important when addressing the capital gains within joint ownership accounts as you try to minimize tax penalties.
Let’s clarify more. The investor that provided the capital to purchase the investment is entitled to the increase in the asset’s value. If this was a sole individual, they are due 100% of the gains. However, if both owners of the account each provided half, the profits are split. Regardless of what happens behind the scenes, for tax purposes, the income funds are allocated accordingly. To rephrase, you cannot choose who reports the income on their taxes from the account if the known source is one of the holders. Again, it’s important to mention here that this is true for joint ownership of unmarried parties. For married parties in a community property state, if titled appropriately (i.e. jointly or held in community property), the gains are shared equally, regardless of who bought the asset.
Your brokerage or investment company will supply tax documentation to the primary social security number on the account, enumerating the division. Between the two returns, 100% of the gains must be reported, and the IRS might want to match this documentation to an explanation within the next two years. If so, they’ll send you a letter, and you’ll want to provide the documentation as proof. For this reason, you need to keep the record for a minimum of three years.
As for the sale of co-owned property, as long as all parties lived primarily within the residence for two out of the five years before the date of sale, each party is entitled to a $250,000 capital gain deduction.
If you have more questions about joint ownership, please get in touch with us. Your Sand Hill Wealth Manager is ready to work proactively with you and your tax professional to plan for your unique personal circumstances.
Sources: Kiplinger, Morningstar, Nolo, Intuit
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.