Ways to Hold Title to Real Property in Arizona

This page describes the various ways to hold title in Arizona. Arizona is a community property state.  Property acquired by a husband and wife is presumed to be community property (jointly and equally owned by spouses) unless legally specified otherwise.  Title may be held as "Sole and Separate."  If a married person acquires title as sole and separate, his or 
There are four common ways to hold title to real property in Arizona, and they are all explained and defined below.
her spouse must execute a disclaimer deed to avoid the presumption of community property.  Parties may choose to hold title in the name of an entity, e.g., a corporation; a limited liability company; a partnership (general or limited), or a trust.  Each method of taking title has certain significant legal and tax consequences; therefore, you are encouraged to obtain advice from an attorney or other qualified professional.
COMMUNITY PROPERTY
  • Requires a valid marriage between two persons.
  • Each spouse holds an undivided one-half interest in the estate.
  • One spouse cannot partition (divide) the property by selling his or her interest.
  • Requires signatures of both spouses to convey (transfer the property) or encumber (attach a liability to the property that may affect title).​​
  • Each spouse can devise (give the property to someone through a will) one-half of the community property.
  • Upon death, the estate of the decedent must be "cleared" through probate (the courts), affidavit (authorized written statement), or adjudication (final judgement or decision in a legal preceding).
  • Both halves of the community property are entitled to a "stepped up" tax basis (original basis of real property changed to current value) as of the date of death.
COMMUNITY PROPERTY WITH RIGHT OF SURVIVORSHIP
  • Requires a valid marriage between two persons.
  • Each spouse holds an undivided one-half interest in the estate.
  • One spouse cannot partition (divide) the property by selling his or her interest.
  • Requires signatures of both spouses to convey (transfer title to property) or encumber (attach something that burdens title to the property, such as a mortgage or lien).
  • Estate passes to the surviving spouse outside of probate (the courts).​
  • No court action required to "clear" title (free title from encumbrance of decedent) upon the first death.
  • Both halves of the community property are entitled to a "stepped up" tax (original tax basis of real property changed to current value).
JOINT TENANCY WITH RIGHT OF SURVIVORSHIP
  • Parties need not be married; may be more than two joint tenants.
  • Each joint tenant holds an equal and undivided interest in the estate, unity of interest (anything affecting title affects all parties equally).
  • One joint tenant can partition (divide) the property by selling his or her joint interest.
  • Requires signatures of all joint tenants to convey (transfer title to property) or encumber the whole (attach a liability to the property that may affect title).​
  • Estate passes to surviving joint tenants outside of probate (the courts).
  • No court action required to "clear" title (own free and clear without encumbrances) upon the death of joint tenant(s).
  • Deceased tenant's share is entitled to a "stepped up" tax basis (original basis changed to current value) as of the date of death.
TENANCY IN COMMON
  • Parties need not be married; may be more than two tenants in common.
  • Each tenant in common holds an undivided fractional interest in the estate.  Can be disproportionate, e.g., 20%, 80%; 20%, 20%, 60%; etc.
  • Each tenant's share can be conveyed (transferred), mortgaged or devised (willed) to a third party.
  • Required signature of all tenants to convey (transfer title) or encumber the whole (attach a liability to property that may affect title).​
  • Upon death, the tenant's proportionate share passes to his or her heirs by will or intestacy (dying without a will).
  • Upon death, the estate of the decedent must be "cleared" through probate (the courts), affidavit (authorized written statement), or adjudication (final judgement or decision in a legal preceding).
  • Each share has its own tax basis (cost or value of real property to determine capital gains or loss).

​More on "Stepped Up" Tax Basis:
Stepped up basis means that the original basis of the real property will be changed to the current value at the time of death of the owner. This can keep down capital gains taxes if the beneficiary of the deceased sells the asset. 

Example #1: 
Tom and Mary Peterson buy a house for $150,000. When Tom dies the property is worth $250,000. If the estate passes to Mary (surviving spouse), she can sell it for $250,000 with no capital gains tax incurred. If Tom and Mary had sold the property before his death, they would have incurred a capital gains tax on $100,000.

Example #2:
Frank bought a house for $200,000 and lists Jim as his beneficiary. At the time of Franks death, the house had a fair market value of $300,000. When Jim inherits the house (as Franks beneficiary), he receives a step up in the original cost basis from $200,000 to $300,000. If Jim turns around and sells the property for $300,000, then he will not owe any capital gains taxes. If on the other hand Jim holds on to the property for many years and then sells it for $350,000; then, without having made any further improvements to the property that would increase the basis, Jim will owe capital gains taxes on $50,000 (the difference between the sales price of $350,000 and the $300,000 stepped up basis).

    Contact Troy
    for more info:
If you have any questions on the best way to hold title in Arizona that will provide for your specific needs, you are encouraged to obtain advice from an accountant, attorney, or other qualified professional. Your accountant may be able to make you aware of significant tax savings based on how you hold title. Additionally, your attorney can give you advice on ways to limit your liability in regard to real property. While this article provides some general information on different ways to take title in Arizona, it is not meant to be exhaustive.