All Forum Posts by: Account Closed

@Brandon Hall 

I sold the property we're discussing in 2015 in a 1031 exchange. That explains the timing of my question. I want to make sure the correct basis is carried to the replacement properties (Yes, multi-asset, topic for another discussion).

The property was put into service as a rental in 2011. The basis I calculated and used was very close to FMV. If anything, I took slightly less depreciation in previous years returns than I should have. Hopefully no significant damage was done. 

The fact that I will be adding the debt I assumed to my adjusted cost basis is helpful. I assume that would be 50% the principle balance at the time the joint mortgage was paid off. I'm still not clear how what I paid her will shake out since it may not have been properly documented. Lesson learned there.

I have enough information to use TurboTax to file an extension for now. I've been using TurboTax for years, but it's clear it's time to hire a professional. I expect to be looking for a CPA to be filing 2015 taxes with...:)

Thanks again for your comments.

@Dave Foster:

Thanks for you input.

The property was our primary residence for the entire time before I "bought her out", so no deprecation would have been taken.

FMV was low when I put the property into service as a rental. What I calculated for adjusted cost basis was very close to FMV. If I underestimated my basis calculation, not much harm was done (I hope/think).

My understanding is the basis I used for depreciation will be different than my adjusted basis on form 8824, since the later will include land? It seems a good time to correct any error in how I calculated my adjusted cost basis in the property.

@Brandon Hall

@Brandon Hall:

Thanks for your input. I can see why you're requested to comment on so many discussions...:) 

We didn't document the funds I gave her at all...:( That's probably the portion of this thread to benefit others - "learn from my mistake". 

We were both on the original mortgage, and yes it was split 50/50, so yes I assumed her debt. I paid her the $20k (in our fictional example) for her share of the equity in the property - or so we were thinking.

The funds she received mostly came from a cash-out refinance, with the proceeds probably going into our joint bank account - in case that's relevant.

I'll look up the title docs from the transaction, but I think she just signed quitclaim, with no mention of "purchase" or funds exchanged...:(  Again fellow BP community, learn from my mistake.

I'm still not sure what bad news may come, but the good news I guess is that in any case I may have slightly under-estimated my adjusted cost basis since I didn't incorporate the debt I assumed...

Thanks again for your comments everyone.

Joe

I should add that I'm filing an extension for 2015, and will be looking for a CPA after 4/18 to help sort this out in gory detail. I'm posting these questions for the benefit of others that find themselves in my position, for my own understanding,  and to help pay an appropriate amount in estimated taxes.

@Meagan Barkley

Thanks for your response. While your example makes sense, and is consistent with my understanding, it doesn't answer my primary questions.

Adding to your example:

Let's say in 2000 we purchased for $100k, with 20% down, $80k mortgage.

Around 2004 she wants out.

She and I decide if we sold she'd probably clear ~$20k after expenses if we sold, so we agree I'll pay her $20k for her share of the property. We're clueless about concept of cost basis or tax implications, so $20k isn't paid out in escrow. In fact part of the $20k is in the form of me paying off her student loan.

Let's say FMV is probably ~$160k in 2004. I do a cash-out refinance in my name only, she signs quitclaim in process. Funds from cash-out refinance are wired to our joint bank account as I recall.

I'm not sure which details are relevant. Do I add the $20k I paid her? If so, does the fact she wasn't paid in escrow a problem? What documentation do I need to support the payment? To complicate matters, she possibly didn't report the funds received or the sale of her (share of) her primary residence on her tax returns. Since we were sloppy, did she inadvertently "gift" me her share of the property, and I inadvertently "gifted" her whatever I "paid" her?

On the other hand, does it not matter what, or how, I paid her, and what matters is only what the documents state or imply? For example we paid county transfer tax. I guess there was an assumption that the cash out portion went to her?

I'm aware that improvements and some closing costs are added to basis. I have no questions on those for now.

Yes, I'm aware that depreciable basis at time of conversion is lesser of two values. I'm actually concerned with nailing down the adjusted cost basis once and for all since I sold the property in a 1031 exchange last year. 

Thanks again for any input.

Years ago, I purchased my first primary residence with my (then) girlfriend. We each paid 50% of the down payment, each paid 50% of the mortgage and any improvements. We split everything equally. A few years later we split up, she wanted out, I wanted to "buy" her share of the property. I refinanced the mortgage in my name only, she signed quitclaim deed, I paid her what she and I agreed was fair for her share.

Fast forward a few years, the property is now a rental and I need to calculate my adjusted cost basis.

My intuition is that my adjusted cost basis is 50% of our adjusted cost basis when we were joint tenants, plus what I paid her, plus 100% of eligible improvements since then. 

Do I add what I paid her? She wasn't paid in escrow. Does that matter? What record keeping is required if I wrote her a check or or paid off her credit cards and/or student loan? 

Does the IRS base the answer to this question on what we intended to do, or what we did? 

Are there additional details needed to answer this question?

This is one of a number of RE tax questions I have. I'll ask them in separate posts so others can learn from my mistakes...:)

Thanks in advance for any input.

Well, and there she is. Hi Rachel!

I have a few rentals in Wilmington. They've worked out pretty well for me. Most were REO fixers that we renovated and then put into service as rentals.
I agree with what William says in the post above.
I'm pretty happy with my RE agent & property manager if you need a referral. Rachel de Faut of Sea River Realty. She works with a number of out of town investors that I'm aware of, and has a lot of experience with distressed income/investment properties.
Feel free to message me with any specific questions.

I have a few rentals in Wilmington, mostly downtown. They've worked out pretty well for me.

I have a few rentals in Wilmington. It's worked out well for me. My agent and property manager is Rachel de Faut of Sea River Realty. She works with a number of out of town investors. Feel free to PM me with any questions.