Joint homeownership affects who pays capital gains tax when you sell, but the cost depends on several factors.

Q: I own my house, free and clear in Arizona, together with my two sons. If I sell, the capital gains tax is 15 percent. Do we each have to pay 15 percent on the profit or am I the only one who has to pay the tax?

I’m the principal owner and not my sons. Do I need to quit claim the home to my sons before I sell? The property is not my primary residence and that’s why I have capital gains tax to pay.

A: When you own a home with your kids, you probably did that for “estate” planning purposes. Many people decide to title their properties with their kids in joint tenancy with rights of survivorship. They do that so that when the parent dies, the kids automatically get title to the property. When families take this route, they usually don’t think about the tax consequences but rather the process of having the property go from a parent to a child after death.

From the property transfer process, the use of joint tenancy to transfer ownership of a home after the death of a parent is easy and cheap. On the federal income tax side, the process can be a bit more complicated and sometimes not very beneficial to the children.

But let’s first deal with your capital gains tax issue. When you have a second home — and it is not an investment property — and then sell it, you may or may not have federal income taxes to pay. If you have a loss on the sale, you won’t have federal income taxes to pay and you also won’t have a “loss” to claim on your income tax return.

If you have owned the property for more than one year and sell for a profit, you will have a tax to pay but that tax will be a capital gains tax. Currently, the capital gains tax is 15 percent for lower income Americans and 20 percent for higher income Americans. The capital gains tax is only computed on the profit on that sale. You probably have costs when you purchased the home and you certainly will have costs in the sale of the home. You also have capital expenses you put into the home while you owned the home. When you compute all of these amounts, you come up with the “basis” for the home and the “gain” or profit in the sale of the home.

Basis and gain are the general terms used by tax practitioners and the IRS in determining what your cost and profit might be on the sale of a home.

If you have an idea of what your profit is and generally know where you are on your tax bracket for income tax purposes, you can sort of figure out where you’ll fall in paying capital gains taxes. You mentioned the 15 percent rate for yourself. If that rate is true for you and you have a $50,000 profit on the sale of the home, you could say that the 15 percent capital gains rate might be $7,500. But that would be too easy.

In reality, computing capital gains is going to be way more complicated than that for you. Since you own the home with your kids but your kids probably never had anything to do with paying any of the bills for the home and were on title solely for estate planning purposes, your sale might only get reported on your federal income taxes. If that’s the case, your kids shouldn’t have any tax consequences with the IRS.

Now if the profit on the sale bumps you up to a higher tax bracket, you might end up paying up to 20 percent in capital gains taxes on the sale of the home or about $10,000 plus you might also have to pay the 3.8 percent Medicare tax for a total tax of around 23.8 percent on the sale of the home.

While it’s easy to give you these numbers, the actual amount you pay will vary on your income, your deductions and other factors. We’d suggest you sit down with an Enrolled Agent or your tax advisor to go over your sale. Finally, frequently people think the tax they will pay will be much higher than the amount that actually comes about after you compute all the expenses and look at all factors in your tax return.

On the issue of having your kids on title to the property, current law would say that if you own the property by yourself, when you die, your kids would inherit your property at the property’s value at the time of your death.

So, if you did have a $50,000 profit if you sold but kept it and later died, your kids would pay no tax on the sale of the home because when they sold it, the IRS would treat the kids as having sold the property at the same value for which they got it — so no profit on that sale. That’s something to keep in mind when you plan how you hold title to a second home and even investment property.