1031exchange or buy out ex-husband

1031 Exchanges
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1031exchange or buy out ex-husband

Jen Hoang
Investor · San Diego, CA · Member since 2015 · 96 posts · 37 votes

I have a property I own with my ex-husband. It's in Houston, TX. I consider it an "A" property. Good Area, good school district. Tenant always pays on time and has a great job. The lease is coming up for renewal and my ex wants to 1031 the property or sell it. I don't want to sell it and I am not ready to do a 1031. Here are my questions:

Can we both 1031 into separate properties?

If I buy him out, how do I calculate the price? This property is worth ~250k, and we owe about ~$45k. 

Thanks in advance!

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Robert Herrera
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Jen Pothilat I’d do a cash out refinance. First get an appraisal so you know what the actual value is. If it is $250k then subtract the $45k leaving $205k divided by 2=$102,500 equity each. Cash out refi at 70% loan to value. That’s $250k at 70%= $175k New Mortgage! Split the closing costs or make him pay the closing cost since you are taking on the debt. $175k -$45k old debt= $130k. $130k- $102,500 = $27,500 cash out in your bank account. You pay no taxes on any of this as you don’t pay taxes in a loan. He pays taxes on the $102k as it’s considered income from you buying him out. Plus he pays you for the closing costs.
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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y

    @Jen Hoang - You can do a cash out refi on an investment property as long as you have less than 4 properties and are doing up to a 70% LTV. When I got divorced last year that is what I did with the property we had previously owned jointly and I bought him out. At the same time you would but the note and deed in your name only and make sure the divorce agreement or decree reflects it all

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  • Jen Hoang
    OP
    Investor · San Diego, CA · Member since 2015 · 96 posts · 37 votes
    8y

    @Brie Schmidt Thanks! We are already divorced. Is there a bank you can recommend?

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Jen Hoang:

    @Brie Schmidt Thanks! We are already divorced. Is there a bank you can recommend?

     Any broker with an IQ over 50 should be able to do it.  

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  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    8y
    Jen Pothilat look for a BROKER, not a BANKER!
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  • Bob B.
    Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    Talk to a local bank or credit union

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  • Jerry Murphy
    Investor · Culver City, CA · Member since 2017 · 76 posts · 40 votes
    8y

    I would sit down with a good lawyer who knows about taxes and divorce and real estate.  Most divorce lawyers know enough about all three and they've probably seen this situation before. You should re-read any divorce decrees or agreements before making any decisions. 

    You can do a 1031 with your ex. Then buy two similar properties and just split them between you.  I think I remember a special IRS rule that says you can do a 1031 exchange and split it so long as the divorce agreement says you will do that. I think the IRS even gives you a few years after the divorce to do this. 

    What you do not want to do is try to do a 1031 exchange then sell to your ex within a year or so.  That could trigger the IRS to not count the sale as a true 1031 exchange. You could end up with a big capitol gains tax bill. 

    You could buy your ex out.  Closing costs should be minimal. You basically give him $$ and change the deed. 

    There are other creative ways to avoid taxes in this situation. But I don't practice law in this area so I would suggest you talk to someone more knowledgeable. However, most people find their exes to be untrustworthy and difficult to work with. If you do not then I think that is great.  I would still advise you to run your plans by your divorce lawyer.  

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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    8y

    Wells Fargo is just one bank. There are thousands of banks across the county and many other types of lenders.

    Well Fargo just sounds like they are not that hot on the idea.

    Find a lender who wants the business if that is the way you want to go with placing new debt on the property.

    Have you tried U.S. Bank? They have been more aggressive on loans lately and seem hungrier for business but this is on the commercial side for real estate so I do not know about their residential arm. 

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    8y
    Originally posted by @Jen Hoang:

    I was just informed that I can't do a cash out refi since it's a rental property in Texas :(

     You can do a cash out refi on a rental in Texas, I have done them.

    I think they are referring to owner occupied, homestead properties.

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  • Michael Anspach
    Real Estate Investor · Smithtown, NY · Member since 2013 · 65 posts · 26 votes
    8y

    @Dave Foster and other 1031 pros, since it is currently a TIC can Jen's ex-husband sell his portion to @Jen Hoangwithout effecting her portion?  He can then 1031 and she can own entire property and everyone wins?

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    8y

    @Michael Anspach, if he does that there's some related party issues as well as the federal interpretation that he is selling to himself since really it is their joint tax return that is the owner for federal purposes. 

    In that event it is much better to let the divorce decree speak.  Fed law honors the terms of a judge issued divorce decree and that would  allow them to distribute assets between them  without a 1031.

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  • Jen Hoang
    OP
    Investor · San Diego, CA · Member since 2015 · 96 posts · 37 votes
    7y

    I really want to finalize the cashout refi this year. Thanks for all your comments and suggestions!

    Anyone know a good lawyer who knows about taxes and divorce and real estate?

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