All Forum Posts by: Account Closed

Originally posted by @Debra Grumbach:

Hire a tax accountant to figure your cost basis

 Know any good CPA that could help me with this? I would appreciate your reference :)

To clarify... Both units are pretty much identical to each other in terms of square feet, number of bedrooms and bathrooms, however, with just a few main differences such as:

1) The lower unit has one window less than the upper unit in the back of condo due to the stairs from the upper deck down to the ground level so that stairs end up preventing the possibility for a window in that wall on the left side in the back of the lower unit. 

2) The upper unit has a structure on the roof that is considered as a den room and it has a nice view of monument and Capitol Hill. The lower unit has no access to the rooftop unless it needs to repair its HVAC on the other side of rooftop. 

Hello guys,

My business partner and I just had our construction project completed by our developer with a condominium building consisting of two units (one unit has access to its own rooftop and another unit does not have any access but both do have their own respective decks outside in the back). Our names are currently deeded together in each unit. We plan to subdivide the units and re-deed the upper unit to my name as a sole owner and the lower unit to his name as a sole owner. He does not plan to live in there and will sell it immediately. I intend to live in the upper unit for at least 2 years minimum so that I can qualify for the section 121 capital gain exclusion. That's my goal and the main reason why I want to take that advantage to live there. 

The construction loan is $800K. The upper unit should be valued at $695K and the lower unit should be valued at $605K. I would pay 50% difference in the valuation between those two units. In that case, the difference between the upper and lower unit would be $90K, meaning I'll have to pay him $45K cash to buy him out for the upper unit. My biggest question here is... Should the cost basis be determined based on the percentage of the valuation of each unit out of the entire condominium building, in that case, it would be $1.3M total ($695K + $605K)?

For instance, the upper unit has 53.5% ($695K divided by $1.3M) value allocation of the entire building. The lower unit has 46.5% ($605K divided by $1,310K). Should those percentages apply to the cost basis computation? Is that how cost basis is generally determined in each unit in any real estate deals? I was thinking cost basis should be split evenly regardless of the valuation given for each unit so it would be $400K each for both upper and lower unit. Because at the end, we would get the same outcome in terms of net profit before him trigger any capital gain taxes. 

If we compute the cost basis based on the valuation of each unit out of the entire building, he would end up getting more net profit than me. It does not make sense to me so I would like to ping anyone who has a lot of expertise in real estate deals with their business partners and see how they come up with the cost basis computation on new construction like in our example above. Please do tag someone else if you know anyone that has dealt in situations like this. 

Thanks,

A

Steve Vaughan what's your definition of rich? :)

Steven Hamilton II , Thanks for your response. That's what I originally thought. I will not incur any capital gain taxes as long as I keep my 50% interest. However, I am not sure if I understand you when you stated, "except the addition of the new basis". It is my understanding I will not incur any taxes after buying a partner out. It will only incur when I sell the unit. Correct? Art

Daria B. Thanks for tagging Brandon. If anyone knows any CPA that might be able to help answer this, please feel free to tag them. That would be very helpful. That's one of the things I like about this forum helping each other out! :)

Daria B. We are having the land lot constructed a two units condominium. Once fully constructed, my partner is more likely looking to sell his 50% interest to someone else. Does that incur capital gain taxes for me personally when he intends to have his name off when turning a construction loan into a conventional loan and then replace to someone else and my name on a conventional loan? I would appreciate if Brandon Hall can give his answer to this post. Many thanks! Art

All: Can anyone please let me know whether or not I will personally incur capital gain taxes when my tenants in common partner sells his 50% interest of two properties we co-own? I was thinking I should not incur any capital gain taxes since I will be still keeping my 50% interest. However, I was concerned that he may cause me to incur capital gain taxes because he is selling his 50% interest. Would that be the case? Please kindly let me know and I would greatly appreciate your help. Thanks in advance! Art

Thanks for your replies. I appreciate your time. @Brian Eastman @Rajeev Kotyan

Brian Eastman Dmitriy Fomichenko What will happen if you purchase a property out of any self directed IRA with a non-recourse loan and you find out that the property will need some unexpected repairs but you don't have sufficient funds in your self directed IRA?