Sale of a “rental” in Honolulu

[Daniel Joseph]

Aloha everyone!

This is my first post here, and I’m hoping I’m in the right place.

My wife and I moved to Honolulu 6 years ago and we were just kids in our very early 20’s. We had saved up a good chunk of cash, including some trusts from grandparents, and we attempted to purchase a condo. Banks wouldn’t lend to us because of our lack of credit history, and if they would the interest rates weren’t very friendly. Long story short, my father-in-law ended up using our cash for the down payment, and he put himself on the loan (we are not on the loan or title of the condo) in order to get the funding from the bank to purchase.

Here we are 6 years later and we’re expecting our first child and looking to move into something a bit bigger. We’re looking for guidance on how to navigate the sale of the condo. Some people have told us we don’t necessarily have to pay capital gains since we can prove it was our money used for the down, and we have paid the mortgage every month. Others have said we just have to bite the bullet and pay up. Again, we aren’t on the title of the condo nor are we on the loan, so technically every check we cut is paid as “rent” to our landlord aka Dad-in-law.

I would so appreciate any help or guidance someone could provide. Is there someone here who has been in a similar situation? What are some of our options?

Thank you!