What to do with this check!?! Tax help please!

Question

So me and a business partner bought a house for $70k outright. ARV house is worth $130k. I put in the $70k up front in hopes of that he was going to pay his half but over time I saw that wasn't going to happen so I told him to buy me out @ $80k. Now my question is when I get the check for $80k can I just take it to the bank and deposit it. Or will I have to pay taxes on my sell? This home was my primary home too btw. And I live in Florida. Any advice will help thanks BP!

Scott Krone · Answer

@Ryan Truong - I will first preface this as I am not a tax accountant.  You should consult with one as everyone's tax situation is unique.  That being said, based upon my experience, first you will not be taxed on the full $80k.  Worst case it would be $10k as your cost basis was $70k.  Another question would be, have you spent any additional money to improve the house which will increase your cost basis?  How long have you lived there?  Are you married?   Is this your primary job?  What were your property tax expenses?  You should not have any problem depositing the check at your bank.

These are all factors to be discussed with your tax accountant.

If you close next month, you have 11 more to talk about it with your accountant.

Ryan Truong · Answer

Cara now would it matter if this was my primary residence? I am currently living there and rehabbing the place, kind of like a two year live and flip.

Cara Lonsdale · Answer

If I understand your post, it sounds like you are anticipating the money, right?  So, the partner has agreed to pay you the $80K for his portion of the project?

I think this is a good question for the CPA.  However, I would lean toward actually going through the selling process.  Sell it to him for the $80K he owes you, then quit deed it to him.  You will have to pay capital gains unless your rehab expense was greater than the gain figured.

Ryan Truong · Answer

Greg thanks for the advice. I will definitely consult with a lawyer to be sure. We close on the deal next month for sure though. It's going to happen I just don't know what will happen when I go to deposit the check and the bank asked where is this money coming from. I wonder if it will be an easy answer like "Hey you have to pay taxes on the sale of your home" or "It's fine you can just put it in the bank."

Greg Scott · Answer

Ryan:

I think you will be lucky if you get a check for $80K.   Your business partner does not sound very ethical and based on your post, you just gave him $35K in equity.   That is a $115K incentive for him to ignore your request.

Before getting tax advice on something that hasn't happened, you should get legal advice on how to get out of the situation you put yourself into.   See a lawyer.  It is cheaper than $35K.