When parents purchase a principle residence, should children be included as co-owners so that no further actions need to be taken upon inheritance? Below points may make this arrangement bad from a tax perspective:
- Kids who are co-owners usually own a property of their own. Hence if the parents decide to sell the property during their life, they would get a principal residence exemption on their part of the capital gain but kids will be taxed.
- Upon inheritance of the property, kids would inherit their portion at the original cost as oppose to cost at the time of inheritance. Original cost is usually lower which would make the gain larger when property is sold by the kids.
- Non tax but important point – if kids are co-owners, everybody need to agree on the sale. Everyone’s situation might be different during life time.