Cash out refinance-do you pay capital gains

[Ben Szafran]

I just cash out refinanced a rental home so I could buy a partner out of the property.  I was the only person on the loan to start with, and I am the only entity on the loan now. I paid the partner out-does he pay captial gains tax on the earnings?  My understanding is no taxes to pay.  Any advice welcome.  (by the way I wrote my CPA, but he is out of town for the long weekend)

[Basit Siddiqi]

You 'potentially' created an issue depending on how you are reporting it for tax purposes.

How were you reporting this activity with a 'partner'.
Was this done through a partnership return?
Was it done by only reporting your share on schedule E?

The thing I want to bring to your attention is how you will report the additional basis for buying out your partner.
When you sell the property, you want to make sure you are factoring in your buyout.

Some discussions to have with your CPA.