Home ownership

[nojnof]

I'd like to find out how this situation will affect my tax.  My ex and I purchased a home together.  Now that we are not together anymore, one of us will be the sole owner.  Both of our names are on the deed.  Let's say now my partner refinances the loan, and my partner will be the sole owner and the only one to occupy the home.  Do I have to report to the IRS?  Will I need to pay any taxes?

[xmasbaby0]

Did your ex-partner pay you for your share of the house?  Did money change hands?   Please explain.

[nojnof]

There's no money exchanged.  Basically, I give up my portion of the equity.  Certainly, I could ask my ex to give me some money; how would that complicate my taxes?  I'm also curious to know for that scenario.  Thanks.

[NCperson]

you have used the word 'ex' and 'partner', but nver "spouse".

were you two married and now divoriced? or never married? 

[nojnof]

We were not married.

[TomD8]

You may want to consult a real estate attorney, but I believe it works like this: If no money changes hands, and if the party receiving your share is not your spouse, then you have given them a gift, and federal gift tax provisions would apply to the fair market value of the transferred property.

[NCperson]

@TomD8 - I agree with you, which is why I asked about the marital status.  

One is gifting half the equity to another.  it is subject to Form 709 reporting. 

[Mike9241]

since you are divorced didn't the settlement mention the property? 

[NCperson]

@Mike9241 - I assumed by 'not married" and using the terms "partner" infers (maybe incorrectly) that they were never married.......

[nojnof]

I can see it as a gift.  But how would it be different if I died, and my partner gets 100% ownership because the title of the house a Joint Ownership with Rights of Survivorship.  That would be still a gift when reporting on a tax return?

I see my situation can be complicated.  The best way to have a clean division is to sell the property and divide the proceeds and each one of us pays taxes accordingly.  But when one is still living in the house, and  the other one does not want anything to do with the property any longer.

How would it work if we were to refinance and re-title the deed in my partner's name only?  And I claim half of the equity.   This way, essentially we sell the house together, and my partner buys it 100%.

[TomD8]

"But how would it be different if I died, and my partner gets 100% ownership because the title of the house a Joint Ownership with Rights of Survivorship.  That would be still a gift when reporting on a tax return?"

According to this web reference, the death of a non-spouse JTWROS co-owner "can trigger an asset transfer that the IRS considers a gift."

https://www.nerdwallet.com/article/investing/estate-planning/joint-tenants-with-right-of-survivorshi...

[NCperson]

<<How would it work if we were to refinance and re-title the deed in my partner's name only?  And I claim half of the equity.   This way, essentially we sell the house together, and my partner buys it 100%.>>

essentially, your partner is buying your half of the house and you are selling your half of the house.  That is all that matters.  As long as you lived in the house (AND owned the home) for 2 of the past 5 years, you take away your gain (up to $250,000) tax free.  if you can't satisfy that condition, the gain is taxable income to you. 

[TomD8]

"How would it work if we were to refinance and re-title the deed in my partner's name only?  And I claim half of the equity.   This way, essentially we sell the house together, and my partner buys it 100%."

Somebody correct me if I'm wrong, but if you "sell" your half-interest in the home and only get back half the equity, then essentially you've given your ex-partner a gift of half the home's FMV, less your half of the equity.

If the home's FMV is $400,000 and you each have $50,000 equity in the home, and you relinquish your share for only the $50,000, then in effect you've gifted him $200000 - $50,000, or $150,000.

[nojnof]

That can't be correct.  You don't gift him 150K because that is an additional debt the partner will have to pay off.  Combined together, now the debt is 300k that the partner is responsible for instead of 150k.

[TomD8]

The existence of a mortgage doesn't change the fact that he has acquired full ownership of the property in exchange (only) for your share of the existing equity.   He now owns the house, not his mortgage lender.  He has acquired your half of the home's FMV at closing, in exchange for your half of the equity.  I believe the IRS will regard this as a partial gift transaction.