Originally Posted by josephp732
#1; the detailed answer - but I am not sure if I explained it correctly. I never "sold" my home...In theory my GF sold her half to me for half the equity in the home - it was a buy out... she doesn't really have a cost basis because I just put her name on the deed two years after I purchased the home -
#2; she would have capital improvements that she paid for during us living together.
#3;My question is do I need to report to the IRS the $58,000 buy-out amount that I paid her to remove her name from the deed? If I do how do I report it? what forms? - Thank you
#1;Your situation is very complex. As your deed to your pty(you actually owned it exclusively) was changed to add another owner as a joint tenant, you GF, as a co-owner, it means that a gift has been made of 50% of the FMV and 50% of your adj basis now belongs to her basis and you had to file form 709 with the IRS(as long as the FMV of 50% share of the pty exceded $13K for 2013, $12K for 2012 so on or etc). ALSO as long as the FMV of the 50 % share of the pty exceeds her adj basis, then her basis’d be FMV; as long as her adj basis exceeds FMV of the 50% share of the pty, then if she sells the share more than her adj basis , then her adj basis for gain/loss’d be her adj basis. For example, adj basis of the 50% share of the pty is $50K(THIS MEANS I Assume that your adj basis is $100K so 50% of $100K is $50K) and FMV of the share is $45K f she sells the 50% share of the pry for , say, $55K, then her gain is $5K;$55K-$50K. However, also assume that her adj basis is $50K and FMV of the 50% share of the pty was $55K, then you buy it for $60K, then her adj basis is $55K , NOT $45K.
So to sum it up, assume that your adj basis of the pty was $100K, and 50% of it was given to her as a gift then your Adj basis is $50K including her cap improvements ;$100k-$50K, and you buy it back from her for $say $70K , then your adj basis is now $120K.;$70K+$50K.
#2;Yes as mentioned above, the purchase price of $58K is included as your basis. Her cap improvements are all included in her adj basis and it also included in yur adj basis b being transferred to your purchase price, in this case, $70K as mentioned above.
#3;no certain form.It is not legal to deduct home improvement costs from tax returns but it is legal to add it to the taxable basis of income. Yyou just need to determine your initial tax basis ,quite simply, the price you paid for the property. For example, if you purchase the pty as an investment for $100K your initial tax basis on the property is $100K; then you need to calculate improvements to the property. Any capital improvements made to the property with a useful life of one year or more are allowable adjustments to the property's tax basis. Some examples of allowable improvements include additions to the property, replacing an entire roof, paving the driveway, installing central air conditioning and similar major improvements to the property. Any legal fees, permitting fees and zoning fees paid to accomplish the improvements are also allowable adjustments to the property's tax basis.you need to keep all necessary records receipts/ work invoicesor etc/.
Maintaining good records is a critical step. The easiest way to maintain records of adjustments to a property's tax basis is to start a legal-size folder on the property when you purchase it. The first document to go into the folder is the HUD-1 form you receive at closing which lists the property purchase price and all the associated closing costs in an itemized format. From that point on, keep a record of all major expenses and improvements related to the property.and when you sell it , you need to contact a CPA/ an IRSEA in your locare for professiona help for determining basis of the pty.your tax accountant will calculate your correct tax basis in the property and make sure you receive all the allowable adjustments to lower your capital gains tax on the sale. If your accountant's determination of your tax basis is different from your own, the discrepancy is easy to find by going back to the property's records.