Hi. Several years ago I acquired a single family home as a rental property with a co-owner. Each of us had 50% interest in the property and as such we were splitting expenses and income and accordingly recording this on our respective Schedule E forms. Last year, I bought my co-owner's 50% interest in this property in a refinance with cash-out transaction (ie, we agreed on a sale price for his 50% interest) and at closing he got paid the agreed upon sale price less his share of property taxes, closing costs, etc.
Now onto my question. How do I record this transaction on Schedule E? I now own 100% of this property, but each half has it's own cost basis (initial cost basis for the first 50%, and new cost basis for the other 50% I got last year). Obviously, I don't want to record this as a 50% sale + 100% purchase since I did not sell the initial 50%... Thanks!
