Tax issues on selling part equity in my home. - Posted by Christine

Real Estate Investing Real Estate Law
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Posted by JHyre in Ohio on May 23, 2002 at 15:05:20:

To answer the last sentence:

  1. Depends on your respective needs, credit scores and the underlying transaction costs.
  2. He gets an interest deduction, your deduction should decrease, except perhaps in scenario 3 (which is a “wrap”, so you may still get larger interest deductions)
  3. Yes.
  4. If you have lived in the house for at least 2 years, your gain upon sale to him may be wholly or partially exempt. If not, you may be eligible for the installment sales method, allowing to spread the gain over any payments received.
  5. Thats a very broad question…if you incur such a gain, it will probably be at 20% rate and payable as you receive payments, per the installment sales method.

John Hyre

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Tax issues on selling part equity in my home. - Posted by Christine

Posted by Christine on May 22, 2002 at 15:22:29:

I currently own my home with the exception of a small open-ended equity line of credit (my only tax deduction). My live in partner of two years has just sold his own home after a failed attempt at trying to rent it out for a time. Currently, since selling his property, he has a large annual income and no tax deductions.

We considered purchasing a new home together so that we could both share the expenses and claim an equal portion of the deductions. However, we could find no homes equal in square footage and value to the one that we’re already in.

I am now considering keeping my home (valued at approx. $200k) and selling my partner half of the equity so that we can both become co-owners, thus sharing in the expenses and tax benifits. We can do this one of three ways:

1.)By putting his name on the title and than refinancing the home through a bank in both of our names; 2.) By my partner taking out a bank loan on his own to pay for half the value of the house (approx. $100K); or 3.) By having him make monthly payments to me, directly, at about 6% interest until he gradually becomes half-owner of the home.

My questions are: Which is the best option? How will this effect our taxes? Can he claim the interest on his bank loan or on the payments he makes to me if I finance him myself? And will I have to claim the monthly payments or cash sum of $100K as additional income? And how would Capital Gains tax figure into all of this.

Please Help!