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DylanJCross92
New Member

Buying out joint owner of my Multi-family property - Can I write off the buyout?

Hi, I have got an interesting situation I have found me in -- and I just wanted to know what the possible tax implications may be, if any. I live in Boston, MA and I bought a 2-family property in 2015 with a joint owner. We have owned it together since, and have lived in it for that time. I will be living in it for the foreseeable future (the next 1 year). I am now closing tomorrow on buying out the joint owner. I wanted to know if I can write this amount off on my taxes next year?

 

To give some numbers: The property was purchased in 2015 for $567,500. Today the property is valued at over $900k, so I am paying the joint owner $178k for their share of the property. My new mortgage will be $730k. One unit us rented, the other is my primary residence. Will I be able to gain anything from taxes on the $178k buyout amount?

2 Replies
Carl
Level 15

Buying out joint owner of my Multi-family property - Can I write off the buyout?

" Will I be able to gain anything from taxes on the $178k buyout amount?"

No. Not directly.

"The property was purchased in 2015 for $567,500."

So your half of the cost basis is half that amount, or $283,750

"I am paying the joint owner $178k for their share of the property."

So add that to the $283,750 and your new cost basis on the property is $461,750.

" My new mortgage will be $730k."

So hows that? Where does the extra $268,250 come from on the mortgage? What did you leave out and not mention in your post?

Additionally, I assume this is a 2-unit where "at least" one of the partners lived in one unit as their primary residence before the sale, and that did not change after the sale. So how did this get reported for tax reporting requirements? On SCH E of a 1065 Partnership Return? Or by each partner individually on SCH E as a part of each partner's personal 1040 tax return? This matters since as the sole owner you will now be reporting it on SCH E as a part of your personal 1040 tax return. You have to take into account your half of the depreciation that you can not recapture at this time, since *you* did not sell *your* half of this. Transferring the *CORRECT* amount of depreciation is doable. But if you don't know what you're doing and screw it up, the IRS auditors will have an absolute field day with you.

 

TomYoung
Level 13

Buying out joint owner of my Multi-family property - Can I write off the buyout?

"I am paying the joint owner $178k for their share of the property."

So add that to the $283,750 and your new cost basis on the property is $461,750.

" My new mortgage will be $730k."

So hows that? Where does the extra $268,250 come from on the mortgage? What did you leave out and not mention in your post?

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The poster isn't paying $178K for the other half of the property, he/she is also assuming the other half of the mortgage so the $178K is the out of pocket, cash portion of the settlement  Assuming a 20% equity requirement that suggests the property is valued at something like $912,500 so the new basis would be along the lines of $283 ,750 + ($912,500/2) = $740,500.

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