Question - Cash Out Refinance & Multiple Owners - Taxable Income?

[Jeremy Martin]

Hello,

My wife and I Co-own a house with my brother and his wife. This house was deeded to us by my grandmother. My brother and his wife currently live in the house. The house is fully paid off.

We’ve been discussing ways to “divide the inheritance” so to speak.

We’ve learned that we can take money out via cash out refinance so my brother and his wife can essentially “buy us out”. We figure we could get a loan for half the value of the house (say about $185,000). My wife and I would then use that money toward buying a house of our own.

My question is this. I understand that this refi cash is normally not taxable income because it’s a loan.

However, if ONLY my brother and his wife apply for the refinance of $185,000 and then ONLY my wife and I take this money for buying our own house, does that mean the money has technically changed hands, and would it now be taxable?

Or, what if we all 4 applied for the refinance (since we all own the house) but only my wife and I are listed as buyers of the new house? Would this variation incur tax liability?

Or... what if we all 4 refinance and we all 4 are buyer on the new house. Do we avoid taxation?

Just trying to understand since I’m worried a lender will not bother to explain this to us and just let it be our problem to discover later on.

Thanks!