Joint Tenancy vs. Tenants in Common

Joint Tenancy vs. Tenants in Common

by Brette Sember, J.D., October 2018

When you own real property with another person, there are a variety of ways you can hold title together. Two of those options are as joint tenants and tenants in common. Both of these ownership options set you up as joint owners, but there are some key differences between the two. Keep in mind that although the word "tenant" is often used when someone rents property, in the context of this article, it means ownership.

Paper reading "tenancy agreement" with keys on keychain resting on page

Overview of Tenants in Common

One way for two or more people to own real estate together is as tenants in common. In this arrangement, owners can have equal ownership or they could each own different percentages, such as one tenant owning a 75-percent interest and the other 25 percent. Tenancy in common is created by a deed, wherein a previous owner transfers their interest to the new tenants. The tenants in common could obtain the property together from one owner or they could each purchase or inherit their ownership from different previous owners at different times.

Transfer of Tenancy in Common

Tenants in common are able to individually sell their ownership in the property. That means that owner A could sell his 50-percent interest while owner B retains her half. The same holds true for inheritances. If owner A passes away, his ownership rights are inherited by his heirs, while owner B would continue to own her portion of the property. This can lead to some sticky situations where co-owners of a property don't know each other well or at all.

Overview of Joint Tenants

Joint tenants are also co-owners of real property, but there are some distinctions. For example, joint tenants must all take title simultaneously from the same deed while tenants in common can come into ownership at different times. Another difference is that joint tenants all own equal shares of the property, proportionate to the number of joint tenants involved. So if there are two joint tenants, for example, each owns 50 percent, while three joint tenants would each own a third, and so on.

Transfer of Joint Tenancy

Joint tenancy also differs from tenancy in common because when one joint tenant dies, the other remaining joint tenants inherit the deceased tenant's interest in the property. However, a joint tenancy does allow owners to sell their interests. If one owner sells, the tenancy is converted to a tenancy in common.

Joint Tenancy and Taxes

Joint tenancy delays estate tax on the property. Let's say that Jack and Jill are joint tenants of their home. When Jack dies, Jill automatically inherits Jack's interest in the home, with no estate tax owed. When Jill dies and leaves the home to her children, estate tax is applied to the entire property. In instances where a nonspouse is added to the property as a joint tenant, it is considered a gift, meaning gift-tax laws apply to the transfer. This is one reason that it's so important to think about joint tenancy in conjunction with your entire estate plan.

When setting up property ownership, be sure to consider the benefits and drawbacks of tenancy in common versus joint tenancy, as one may be a better fit for your situation than the other. If you need help deciding, talk to an attorney or get help from an online service provider.