The use of joint ownership causes two separate taxes at two separate times. We have discussed the Gift Tax that occurs when the second name is added to the account. But the second tax occurs when the joint owner sells the property or cashes in the account after death. The second tax is Capital Gains on profit realized.
Why would anyone recommend joint ownership? Yet, putting others on your deed or on your bank account is a common recommendation by legal and banking authorities as a solution for avoiding Probate. You solve one problem (Probate) by creating two tax problems. It just doesn't make sense.
In our example where Dad put his son, John, on the deed, we saw a sizable Gift Tax problem occur. Now, after Dad's death, John sells the home for a handsome profit. The problem is that John's cost basis on the home is only half of Dad's, and at least half of the profit was subject to a Capital Gains tax at 18%. His $50,000 profit caused almost $10,000 in Capital Gains tax. Few of us want to leave problems and taxes to our children, but old traditional methods like Wills and Joint Ownership can cause these heartaches and losses.
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