Phil Marti wrote:

- quote -

Amen!
Besides describing partnerships with uneven participation,
the contract must cover what happens when things go wrong,
which may be more often than you think. Usenet postings and
courts are full of partnerships gone bad. Fortunately you
havent reached that stage.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Maya" <k40n30[at]gmail.com> wrote:

- quote -

The best way to deal with this is to treat it as if she made
a loan to you of half the down payment. You get half the
appreciated value, less interest on half the down payment
for the years since the property was purchased. She pays
you that amount, and that should do it.

Stu

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

- quote -

We were very very naive.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Herb - Correct. This is a residential property.

Another caveat that I would like to throw in here is that my
partner may end up keeping the property. In order words, she
will take over the remaining payments, while I will be
opting out of the partnership/deal and hopefully walk away
with my share. How should this be dealt with?

Thank you all for your insights and advices!

Maya.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Maya" <k40n30[at]gmail.com> wrote:

- quote -

you might study this for some ideas, the most important of
which is to come to an agreement and reduce it to a writing
BEFORE you do stuff like this.
http://www.andysirkin.com/andysirkin/Resource/esm.pdf

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Maya wrote:

- quote -

I'm assuming that this residential property is, and has
been, the personal residence of the two of you, with no
business use or rental. If incorrect, let us know, as the
answers will be different.

First, the mortgage interest and property taxes paid over
the years were (assuming you itemized deductions) deductible
in the year paid. They DO NOT add to the basis of the
property. Insurance is a personal expense of the homeowners
and is never deductible.

Second, determine your individual "cost basis" in the
property. This is a little different than just splitting the
original purchase price in half, as you each put up
differing down payment amounts. $21,600 by your partner
($120,000 x 20% x 90% = $21,600) and a lesser amount of
$2,400 by you ($120,000 x 20% x 10% = $2,400). Total =
$24,000.

Subtract the down payment from the purchase price ($120,000
- 24,000 = $96,000) and divide by two ($96,000 /2 =
$48,000). You did say all monthly payments were shared
equally, right?

Net cost basis is then $69,600 (58%) for your partner and
$50,400 (42%) for you.

There are several ways you can calculate your individual
"gain" on the sale:
1) Reimburse yourselves for your cost basis first, then
divide the remaining profit by 2. This might be the fairest
course, as you built the equity equally.
For example, if the property sold for $240,000, your partner
would get $129,600 ($69,600 + 60,000) and you would get
$110,400 (50,400 + 60,000). Neither of you would owe income
tax on the sale, because of the Section 121 exclusion.

2) Divide the selling price by two, then subtract your cost
basis to determine your individual profit.
For example (using same data as (1)), $240,000/2 = $120,000.
Profit for your partner would be $50,400 and for you,
$69,600. Each of you walks away with the same amount of
cash, but not the same amount of gain.

3) Take the gross selling price and apportion it the same as
the cost basis fractions. Your partner would get $139,200
($69,400 x 2) and you would get $100,800 ($50,400 x 2).

Of course, you are probably equally responsible for any
remaining mortgage balance, so that should be a factor in
your final distribution.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Maya" <k40n30[at]gmail.com> wrote:

- quote -

The way specified in the written agreement you had when you
bought it. Don't ever again buy property with other than a
legal spouse without such an agreement on the front end. It
ensures that you won't be mad at each other over
misunderstandings about the property when you sell.

You and your partner need to sit down and decide what kind
of split seems right to both of you. Assuming you can do
that, people here can advise about the tax aspects.

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Maya wrote:

- quote -

That's a really good exercise there. It would take me
maybe two or three hours to work it out for you, and i would
charge accordingly.

Hope you have good records.

Now where are those thumb tacks?

Holiday ChEAr$,
Harlan Lunsford, EA n LA

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Maya wrote:

- quote -

The simplest method is since you both shared the mortgage
payment/expenses, you first get your $2400 off the top, and
the partner gets $21,600 (the original down payments), you
then share the appreciation 50/50.

This would ignore the time value of the down payments, so
the partner might object. Maybe applying the rate of the
mortgage to the down payment money for each of you, so the
$24,000 at, say, 8% (rates were higher then, did you
refinance at all?) over 16 years would be $82,222. So 10%
for you, $8222, and $74,000 for partner. Then split what
remains.

Forgive the question - why wasn't this discussed up front?
The two methods I offer yield very different results.

JOE

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

The situation is...

My partner and I bought a residential property in the year
1990 for an amount of $120,000 + interests.taxes.insurances.
The down payment of the house was for 20%---My partner put
down 90%, and I for 10% of the down payment.

We split each payment of about $1,000 each month until the
present day.

Now, we have decided to sell the property.

Question is.... How should we go about splitting cash? Do
we take into consideration the interestes.taxes.insurances
that we paid over years on the property as well? Do we only
look at the principle amount?

Regards,
Maya.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >