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Arizona Real Estate Law
by Christopher A. Combs
The following is for informational purposes
only and is not intended as definitive legal or tax advice. You
should not act upon this information without seeking independent
legal counsel. If you desire legal, tax or other professional advice,
please contact your attorney, tax advisor or other professional
consultant.
Explanation of Capital Gains Taxes and Mutual Consent Required to Cancel Listing Agreement
Question:My wife and I are both eighty-seven years old. We have owned as joint tenants with right of survivorship a home in central Phoenix for sixty-eight years. For the last twenty years we have been renting this home after we moved to Sun City. I understand that when one of us dies and is removed from the title, the valuation date of the home for capital gains tax purposes will be computed from this date of death. Is this assumption correct? My second question involves a listing agreement. About two months ago I signed a listing agreement with a real estate agent to sell this home. I am very dissatisfied now with this real estate agent. How difficult will it be to cancel the listing agreement with this real estate agent? In light of the capital gains taxes we would have to pay, I would like to go back to renting the home until either my wife or I die.
Answer: First, if you and your wife own the home as joint tenants with right of survivorship the general rule is that, upon the death of the first spouse, the basis of one-half of the home is increased to the fair market value of that one-half of the home as of the date of death. Although at the time of the sale of the home there would be some savings on capital gains taxes, I would suggest that you transfer the title to the home to community property with right of survivorship. In that event, the basis of 100% of the home will be increased to the fair market value of the home as of the date of death. Therefore, in the event of the sale of the home after one of you passes away, there would be little or no capital gains taxes owed by the surviving spouse even though both of you have owned the home for sixty-eight years. Second, listing agreements are like any other contract in that, unless the parties to the contract agree, the contract can only be cancelled by a breach of the contract, e.g., the listing broker refuses to return phone calls, or the seller refuses to let the listing broker show the property to potential buyers. Most listing brokers do not want to represent unhappy sellers, however, and will generally agree to cancel a listing agreement, especially if the seller reimburses the listing broker for any marketing costs.
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