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Old 10-24-2016, 01:59 PM
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Capital Gain on Invest Property/Personal Residence

My brother, sister and I are all going in on a condo together. My sister will be the only one on the mortgage and all three of us will be on the title. We are each contributing one third of the down payment (my sister pays the full amount and we give her a check for one third). My sister will consider the condo her primary residence and will pay the mortgage and all expenses, including property tax. We would like to verify that we are thinking through the tax treatment properly?

For tax purposes we are planning to have her to itemize the full amount of interest and property tax since she is paying 100% of both and treating as her personal residence. When we sell the property, my brother and I plan to each recognize a capital gain equal to one third of the sale price, less the remaining mortgage, less our portion of the down payment. If my sister lives in the property for the right number of years (I believe 3) she will not recognize any gain on the sale since she is treating as her personal residence.

Thanks for your help!



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Old 10-25-2016, 07:45 AM
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My brother, sister and I are all going in on a condo together. My sister will be the only one on the mortgage and all three of us will be on the title. We are each contributing one third of the down payment (my sister pays the full amount and we give her a check for one third). My sister will consider the condo her primary residence and will pay the mortgage and all expenses, including property tax. We would like to verify that we are thinking through the tax treatment properly?====>Then, If all three of you co-owned and used the house as your principal residence for at least 2 of the5 years prior to the date of sale, you?ll each will be entitled to benefit from the special home-sale tax exclusion. However,, this is not the case so only your sister can qualify fo r the capital gain exclusion;song as she satisfies the 2-out-of-5-year ownership and use tests, then she gets to exclude up to $250K of her share of the gain from the sale of the condo. It does not matter if your sister will be the only one on the mortgage and all three of you will be on the title of the condo and you are each contributing 1/3 of the down payment.

For tax purposes we are planning to have her to itemize the full amount of interest and property tax since she is paying 100% of both and treating as her personal residence. ======UNLESS you pay, you can not claim mortgage expenses ; only the taxpayer who actually pays the mortgage is entitled to a deduction.ALSO she must ONLY itemize deductions to claim those home related expenses on her return by reporting them onher Sch A of 1040.

When we sell the property, my brother and I plan to each recognize a capital gain equal to one third of the sale price, less the remaining mortgage, less our portion of the down payment. If my sister lives in the property for the right number of years (I believe 3) => you need topay LTCG tax on your portionof the LTCG on the sale of the home.The formula for calculating your capital gain is your gross proceeds( I mean selling price) minus your adjusted basis(costs for improvements inside home or etc) minus any primary residence exclusion for which you qualify. But you do not qualify for the LTCG exclusion, your sister does.youdo nt subtract your remaining mortgage /your down payment.
I mean calculating your capital gains starts with finding your adjusted cost basis, which is what the IRS uses as your cost for the condo for capital gains purposes. The adjusted cost basis has three components ;1. the original purchase price PLUS

2.any closing costs that you paid for the property but not the mortgage remianed and d/p; and PLUS
3. the cost of any improvements(if any) that you made to the condo.

Then You NEED to subtract your adjusted cost basis from your sale basis. The sale basis is what you received for the condo after any closing costs or commissions; AS LTCG, unless your tax bracket exceeds 15% your LTCG tax is $0.if your tax bracket is higher than 15% but lower than 39.6% for 2016 then your LTCG rate?d be 15%.

she will not recognize any gain on the sale since she is treating as her personal residence.=======>>Correct aslongas she qualifies for the exclusion [provision.



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Old 10-25-2016, 03:44 PM
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Thanks Wnhough. One follow up question: We plan to split evenly the total net proceeds received when we sell the property, which will include the principal pay down of the loan. Since my sister will be making payments on the loan is the principal pay down taxable to my brother and I?

Thanks



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Old 10-25-2016, 04:14 PM
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Quote:
Originally Posted by reinvestor10 View Post
Since my sister will be making payments on the loan is the principal pay down taxable to my brother and I?

Thanks
No;however as said as she makes pmts only she can claim the expenses on her return. Loan payments made by your sisiter is not taxable income to you and your brother. Since you and your bro did not make pmts, you and your bro never claim the expenses on you r returns.



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