Calculating My Buyout as Partner

[Nathan K.]

I've lurked around here quite often for good while now. It's time for an actual post.

A partner and I own a fourplex together 50/50 and I'm thinking that I'd like to cash out and go on my own now that I would have the capital to do so. I'll list what he has proposed as a calculation of the buyout amount. He has calculated this based on if we were to put it on the market right now and split everything 50/50. My question is if all of these expenses should be in the calculation - I don't know if the bank fees and Capital Gains are supposed to be factors in this or not...

Property Value: about $220k (to be appraised)
Current Mortgage amount remaining: $105,500

Would be Bank Fees: $4000 (early termination on fixed rate)
Legal: approx $1600
Real Estate fees: 4.5% from final sale (about $9900)

Projected gross profit of sale: $99,000

He is saying that Capital Gains must be taken off which a mutual acquaintance of ours who is an accountant has stated would be 26%. However I've found this accountant to have given quite inaccurate information more often than not. But say we go with that...

26% of taxable profit (50%): $12,870

Total Net Profit for each partner AKA my buyout amount: $43,065

Even at this amount I'm fairly happy with how we've done - coming out with 43k from a 16k investment 3 years ago. 
However my issue is with the Capital Gains being in there...Is that normal? I believe Capital Gains is also marginal, so it changes depending on the tax bracket you're in. Looking at the 2014 Capital Gains rates for Ontario Canada (http://www.taxtips.ca/taxrates/on.htm) for my income level, my CG's rate should be more like 16.49% - not 26%. 
Additionally, wouldn't this mean that when it actually comes time to do my taxes next year, I'll report this profit, and actually pay capital gains again - this time on 50% of my $43,065???

My apologies for the long winded explanation here but I'm hoping any major flaws in this can be pointed out.
I thank you for your time and expertise in advance!

[David J.]

You need your own CPA.  If you are reporting the property correctly right now you should not give him capital gains tax to make up for his future tax burden.a

1.  Your partnership agreement should be the documents that tells you how this should haoppen.

2.  If your partnership agreement is silent, your state's business laws will be the default.

3.  If you are just negotiating an amicable split, anything you agree on goes.  I assume this is what you are doing, so anything goes.

Some issues, quations I see are:

1.  How is the property titled and mortgaged?  Is he refinancing out of both of your names into his?  This must be where the bank fees are coming in.

2. The reson he wants to reduce your proceeds by a capital gains tax rate is because when he refinances the property out of your name his CPA is thinking this is not a taxable event (it is not) and thus his tax basis would stay the same.  He woudl then get the hit for the entire gain when he sells the property because his basis remained the same.  This is wrong.  The way to handle this for tax purposes is buyout is a sale of half the property from him to you.  A good (I mean any decent) CPS should know this.  You pay your own taxes on the half of the property you sell him based on your current basis, and his basis will increase by the amount he pays you so when he sells, the portion youpaid taxes on is already accounted for.  All the fees and stuff are just negotiated into the selling price of your half of the property. 

Get a new CPA.  It will be treated for tax purposes as you both have always owned half the property and you are selling him your half.  Plain and simple.