Tenants in Common - Will I Incur Capital Gain Taxes?

Tax, SDIRAs & Cost Segregation
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Tenants in Common - Will I Incur Capital Gain Taxes?

Account Closed
Boise, ID · Member since 2014 · 41 posts · 1 vote
All: Can anyone please let me know whether or not I will personally incur capital gain taxes when my tenants in common partner sells his 50% interest of two properties we co-own? I was thinking I should not incur any capital gain taxes since I will be still keeping my 50% interest. However, I was concerned that he may cause me to incur capital gain taxes because he is selling his 50% interest. Would that be the case? Please kindly let me know and I would greatly appreciate your help. Thanks in advance! Art
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  • Lydia S.
    Real Estate Agent · Albuquerque, NM · Member since 2015 · 542 posts · 193 votes
    10y
    You are not making any gain, so there is nothing to be taxed.
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  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y

    @Account Closed is a CPA here on BP and would be able to answer that question.

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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
    10y
    Daria B. We are having the land lot constructed a two units condominium. Once fully constructed, my partner is more likely looking to sell his 50% interest to someone else. Does that incur capital gain taxes for me personally when he intends to have his name off when turning a construction loan into a conventional loan and then replace to someone else and my name on a conventional loan? I would appreciate if Brandon Hall can give his answer to this post. Many thanks! Art
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  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y

    @Brandon Hall

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  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @Account Closed:

    Daria B.

    We are having the land lot constructed a two units condominium. Once fully constructed, my partner is more likely looking to sell his 50% interest to someone else. Does that incur capital gain taxes for me personally when he intends to have his name off when turning a construction loan into a conventional loan and then replace to someone else and my name on a conventional loan?

    I would appreciate if Brandon Hall can give his answer to this post. Many thanks!

    Art

     I'd like to hear this answer as well. That's a bit of a different situation than existing property. Especially the consideration of the construction loan to a conventional. Everything is a "guess" until a CPA says otherwise.

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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
    10y
    Daria B. Thanks for tagging Brandon. If anyone knows any CPA that might be able to help answer this, please feel free to tag them. That would be very helpful. That's one of the things I like about this forum helping each other out! :)
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  • Daria B.
    Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    10y
    Originally posted by @Account Closed:

    Daria B.

    Thanks for tagging Brandon.

    If anyone knows any CPA that might be able to help answer this, please feel free to tag them. That would be very helpful. That's one of the things I like about this forum helping each other out! :)

     Arthur there are two other people but I'm not connected with them so I can't tag them. Steve Hamilton and Amanda Han.

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  • Karolis Matulis
    Accountant · Cranford, NJ · Member since 2016 · 34 posts · 22 votes
    10y

    If the TIC split is reflected on the title and your partner is only selling his half of the interest you will not be subject to a gain. As long as your interest is unaffected you have no tax implications. In theory TICs are supposed to have separate books and can have different cost basis etc. I've had a scenario where a property was purchased by two separate entities 50-50 in separate 1031 transactions and two separate dates yielding disproportionate halves from the depreciable basis standpoint. Each entity will have to essentially run separate depreciation calcs every year.

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  • Victor N.
    Investor · Wellington, KS · Member since 2016 · 256 posts · 188 votes
    10y

    You are not selling anything if you are tenants in common and not partners so no you will not recognize a capital gain.  Obviously, your property taxes will likely rise.

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  • Brian Pleshek
    Investor · Hamilton, OH · Member since 2016 · 272 posts · 77 votes
    10y

    I wouldn't think so since you're not selling anything.  However, check with your accountant.  If you're doing real estate, you should probably have one.  Taxes can get tricky.

    Brian

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    10y

    @Account Closed,

    The tax question ahs already been answered several times.  The answer is NO just in case you are not sure.

    My question is about the property deed.  You say that your are constructing to condominiums on a single lot.  If you have true condominiums, then each dwelling unit is separately deeded, but the land itself is a separate and undivided common area.  Condos have master deeds, bylaws, covenants, etc.  Property taxes may be handled separately for the dwelling units and for the common area.  Master insurance policy issues can be daunting as well.

    Seems to me that it would be easier to construct a duplex.  Subdivide the lot so that the land under each dwelling unit conveys with the unit itself. You take title to one of the units, your partner takes title to the other.  No property tax issues with common elements, no complex hazard insurance policy to deal with, no common area maintenance issues to deal with.  A sale of one unit is completely independent of the other unit.

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    10y

    @Steven Hamilton II and @Amanda Han. (I'm tagging you for a question above.)

    [email protected]Podcast Guest on Show #261
    BiggerPockets
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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y

    @Account Closed,

    YOU will NOT incur any tax liability until you sell YOUR interest.  If you buy a partner out you will not either except the addition of the new basis.

    [email protected]224-381-2660
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  • Account Closed
    OP
    Boise, ID · Member since 2014 · 41 posts · 1 vote
    10y
    Steven Hamilton II , Thanks for your response. That's what I originally thought. I will not incur any capital gain taxes as long as I keep my 50% interest. However, I am not sure if I understand you when you stated, "except the addition of the new basis". It is my understanding I will not incur any taxes after buying a partner out. It will only incur when I sell the unit. Correct? Art
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  • Steven Hamilton IIPro Member
    Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Account Closed:

    Steven Hamilton II ,

    Thanks for your response. That's what I originally thought. I will not incur any capital gain taxes as long as I keep my 50% interest. However, I am not sure if I understand you when you stated, "except the addition of the new basis". It is my understanding I will not incur any taxes after buying a partner out. It will only incur when I sell the unit. Correct?

    Art

     Art,

    If you purchase the other person's share of the building. You would have additional basis if you bought it.

    [email protected]224-381-2660
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