David Woods, EA, ChFC, CLU <dwoods[at]woods-financial.com> wrote:
- quote -

What loss? She gave him 50% of a house which was presumably
worth about $165,000 (the 50% was) in payment of $165,000 in
debt. That seems like a fair transaction, with no loss.
(Half a house that sold for $200,000 in 2004 might well have
been worth $165,000 in 2002; in some markets more, in others
less.)

- quote -

Again, what writeoff?

- quote -

The debt was repaid with property at full face; no
forgiveness.

However, she would have (in 2002) taxable income from the
sale of half the house for $165,000; the amount depends on
her basis (and whether or not she lived there prior to
marriage, since she could pass the 2 out of 5 years tests if
she did).

Seth

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bored_one wrote:

- quote -

I hope you were reporting the interest (at at least an
IRS-approved rate, even if you didn't collect any) on the
loan for the time before you got married.

However, almost all transactions within a marriage are not
reported. You keep the same basis on the 50% of the house
that she had.

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"bored_one" <creativecopy[at]yahoo.com> wrote:

- quote -

You can't deduct a loss from a related party without a bona
fide attempt to collect. Moreover, you are effectively
writing off a debt from yourself. Even if you did, she would
have to include that amount as INCOME as forgiveness of debt
on the same return, and that's a losing proposition.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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bored_one wrote:

- quote -

Man oh MAN! This is a GOOD one.

I'm not going to jump off the deep end and give you an off
the cuff response, but will point out that the fact that
she WAS your wife when she signed over the ownership might
argue against your having a 165,000 basis in the house. It
just might turn on state law in your case, i.e. whether or
not you're in a community property state like one of those
"communistic" states like California.

In a "regular" type state however, I see it as an arms
length transaction and therefore would support your likely
desire that the transaction provide you a basis in the
house. AT least I HOPE so.

Now, let's see others weigh in.

ChEAr$,
Harlan Lunsford, EA n LA

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Starting in 1992, my girlfriend had a series of heart attacks. She had
no insurance, and was unable to work, and over the following seven
years I made seven loans to her totaling $165,000. We married in 1999
and in 2002 she signed over 50% ownership of a house she owned with her
mother, as payment of the seven loans. In 2004 I sold this 50%
ownership of the house for $200,000. Can I use the $165,000 of loans
made to my wife when she was my girlfriend as the purchase price of the
half interest in the house in order to reduce my capital gains tax?

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