TAXES: Divorced client wants to sell

[Noah Laker]

I'm a broker and property manager in Sacramento with 100+ Airbnb properties in my portfolio. Today I had a new situation and obviously can't advise on tax/legal matters, but hoping to get some insight from the community.

Managing a property for a client who divorced her domestic partner last year. Now she wants to sell the property, which is solely in her name. It is an investment property, and does not meet the qualifications of being her/their primary. 

They bought the property together and the client wants to share the sale proceeds with the ex-partner. She suggested she might have to add the ex to title before closing. This sounds like an unnecessary and potentially problematic step. What's the best way to proceed? Would the Title company be able to sort this out without doing any title work? 

[Ashish Acharya]

@Noah Laker Your client should sell the property under her sole ownership without adding the ex-partner to the title, as this could trigger gift tax implications and complicate the process. Sharing proceeds can be documented through a contract or settlement agreement without title changes. The client will be solely responsible for capital gains taxes, including depreciation recapture, regardless of the agreement to share proceeds. A Title Company can distribute the proceeds based on the agreement, and consulting a CPA will help calculate tax liabilities and explore strategies like a 1031 exchange to minimize taxes. This approach simplifies the sale and avoids unnecessary legal or tax complications.

If she want to share the proceeds and tax obligation in a technical way, she need to file a partnership return for this property.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.