A common question from someone inheriting a property held by Tenants-In-Common (TIC) is if there is a need to pay inheritance tax.
The quick answer is, yes. The inheritance tax for TIC, in most situations, is just like with directly owned real estate. However, it is important to remember that only six states have an inheritance tax.
Also, it is important to remember that inheritance tax, paid by the beneficiary, differs from estate tax, which is paid by the deceased’s estate.
First, let’s explore what TIC ownership is.
There are two ways for multiple people to have a stake in an investment property. The first is a joint tenancy.
A joint tenancy is when the ownership is split equally between two or more parties. With joint tenancy, if one of the owners dies, their share is transferred to the other owners. They cannot transfer the share to another party without permission of the other shareholders.
A TIC agreement is when two or more parties own a share of a property. Unlike a joint tenancy, the ownership shares need not be equal. When an owner dies, their share goes to their beneficiaries as an inheritance. They need no agreement from the other owners in the naming of a beneficiary.
If there is no beneficiary named for a share of the TIC, then it may go to probate for determination of where the shares will be allocated. It does not automatically go to the other shareholders.
As discussed above, there is not a federal inheritance tax, only a state tax that is imposed in six states at the time of writing this article.
Inheritance tax paid on a TIC property is the same as it would be on the inheritance of other directly owned real estate.
Sometimes, even in these six states, there would not be the need to pay inheritance tax. If the benefactor does not live in a state with inheritance tax, the beneficiary should not owe inheritance tax. However, if both the deceased and the beneficiary do live in an affected state, a tax might be imposed.
Because of all the different variables, the best way to determine the tax implications of an inherited TIC property is to consult with a tax professional in the specific state.