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Posted by Maya on December 20, 2006, 10:11 pm
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The situation is...
My partner and I bought a residential property in the year
1990 for an amount of $120,000 + interests.taxes.insurances.
The down payment of the house was for 20%---My partner put
down 90%, and I for 10% of the down payment.
We split each payment of about $1,000 each month until the
present day.
Now, we have decided to sell the property.
Question is.... How should we go about splitting cash? Do
we take into consideration the interestes.taxes.insurances
that we paid over years on the property as well? Do we only
look at the principle amount?
Regards,
Maya.
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Posted by joetaxpayer on December 22, 2006, 1:34 am
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Maya wrote:
> The situation is...
>
> My partner and I bought a residential property in the year
> 1990 for an amount of $120,000 + interests.taxes.insurances.
> The down payment of the house was for 20%---My partner put
> down 90%, and I for 10% of the down payment.
>
> We split each payment of about $1,000 each month until the
> present day.
>
> Now, we have decided to sell the property.
>
> Question is.... How should we go about splitting cash? Do
> we take into consideration the interestes.taxes.insurances
> that we paid over years on the property as well? Do we only
> look at the principle amount?
The simplest method is since you both shared the mortgage
payment/expenses, you first get your $2400 off the top, and
the partner gets $21,600 (the original down payments), you
then share the appreciation 50/50.
This would ignore the time value of the down payments, so
the partner might object. Maybe applying the rate of the
mortgage to the down payment money for each of you, so the
$24,000 at, say, 8% (rates were higher then, did you
refinance at all?) over 16 years would be $82,222. So 10%
for you, $8222, and $74,000 for partner. Then split what
remains.
Forgive the question - why wasn't this discussed up front?
The two methods I offer yield very different results.
JOE
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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<< to this newsgroup as well as our anti-spamming policy >>
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Posted by Harlan Lunsford on December 22, 2006, 1:34 am
Please log in for more thread options Maya wrote:
> The situation is...
>
> My partner and I bought a residential property in the year
> 1990 for an amount of $120,000 + interests.taxes.insurances.
> The down payment of the house was for 20%---My partner put
> down 90%, and I for 10% of the down payment.
>
> We split each payment of about $1,000 each month until the
> present day.
>
> Now, we have decided to sell the property.
>
> Question is.... How should we go about splitting cash? Do
> we take into consideration the interestes.taxes.insurances
> that we paid over years on the property as well? Do we only
> look at the principle amount?
That's a really good exercise there. It would take me
maybe two or three hours to work it out for you, and i would
charge accordingly.
Hope you have good records.
Now where are those thumb tacks?
Holiday ChEAr$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Herb Smith on December 22, 2006, 1:53 am
Please log in for more thread options Maya wrote:
> The situation is...
>
> My partner and I bought a residential property in the year
> 1990 for an amount of $120,000 + interests.taxes.insurances.
> The down payment of the house was for 20%---My partner put
> down 90%, and I for 10% of the down payment.
>
> We split each payment of about $1,000 each month until the
> present day.
>
> Now, we have decided to sell the property.
>
> Question is.... How should we go about splitting cash? Do
> we take into consideration the interestes.taxes.insurances
> that we paid over years on the property as well? Do we only
> look at the principle amount?
I'm assuming that this residential property is, and has
been, the personal residence of the two of you, with no
business use or rental. If incorrect, let us know, as the
answers will be different.
First, the mortgage interest and property taxes paid over
the years were (assuming you itemized deductions) deductible
in the year paid. They DO NOT add to the basis of the
property. Insurance is a personal expense of the homeowners
and is never deductible.
Second, determine your individual "cost basis" in the
property. This is a little different than just splitting the
original purchase price in half, as you each put up
differing down payment amounts. $21,600 by your partner
($120,000 x 20% x 90% = $21,600) and a lesser amount of
$2,400 by you ($120,000 x 20% x 10% = $2,400). Total =
$24,000.
Subtract the down payment from the purchase price ($120,000
- 24,000 = $96,000) and divide by two ($96,000 /2 =
$48,000). You did say all monthly payments were shared
equally, right?
Net cost basis is then $69,600 (58%) for your partner and
$50,400 (42%) for you.
There are several ways you can calculate your individual
"gain" on the sale:
1) Reimburse yourselves for your cost basis first, then
divide the remaining profit by 2. This might be the fairest
course, as you built the equity equally.
For example, if the property sold for $240,000, your partner
would get $129,600 ($69,600 + 60,000) and you would get
$110,400 (50,400 + 60,000). Neither of you would owe income
tax on the sale, because of the Section 121 exclusion.
2) Divide the selling price by two, then subtract your cost
basis to determine your individual profit.
For example (using same data as (1)), $240,000/2 = $120,000.
Profit for your partner would be $50,400 and for you,
$69,600. Each of you walks away with the same amount of
cash, but not the same amount of gain.
3) Take the gross selling price and apportion it the same as
the cost basis fractions. Your partner would get $139,200
($69,400 x 2) and you would get $100,800 ($50,400 x 2).
Of course, you are probably equally responsible for any
remaining mortgage balance, so that should be a factor in
your final distribution.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Phil Marti on December 22, 2006, 1:53 am
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> My partner and I bought a residential property in the year
> 1990 for an amount of $120,000 + interests.taxes.insurances.
> The down payment of the house was for 20%---My partner put
> down 90%, and I for 10% of the down payment.
>
> We split each payment of about $1,000 each month until the
> present day.
>
> Now, we have decided to sell the property.
>
> Question is.... How should we go about splitting cash?
The way specified in the written agreement you had when you
bought it. Don't ever again buy property with other than a
legal spouse without such an agreement on the front end. It
ensures that you won't be mad at each other over
misunderstandings about the property when you sell.
You and your partner need to sit down and decide what kind
of split seems right to both of you. Assuming you can do
that, people here can advise about the tax aspects.
--
Phil Marti
Clarksburg, MD
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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