Q: Is it possible to avoid estate or gift taxes on a house jointly owned by a father and son after father’s death?
Father and son jointly acquired a home with funds provided by the father. They memorialized an investment agreement/promissory note whereby the son was permitted to live in the house while repaying his half of the initial cost. Additionally, the son was responsible for all utilities, insurance and taxes due on the property. The son also made significant improvements to the property without further financial investment from his father. Upon the father’s death, the son became sole owner. How much of the dwelling’s value is part of the father’s estate (which is already valued at more than $1m for MA estate tax purpose)? And is the son on the hook for estate and/or gift tax? The promissory note forgave any outstanding payments which, in total, are under the gift tax threshold of $15k.
A: The issue of whether a third party's improvements to real property reduce its value for estate tax valuation purposes is not straightforward. This question should be directed to a tax professional or your estate attorney.
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