Boyfriend is buying out clients house.

Forum|Forum|6 years ago
March 3, 2020
10 replies
57 views

In 20 years I've never had this issue. Client's boyfriend is on the deed. He is buying her out of her half of the house. California is a community property state. Would there be any tax implications? Maybe a gift? The house isn't being sold so I don't really see any tax forms being generated by this. Am I missing something? If she will somehow be taxed, it affects the purchase price of a new home she might buy, so it would be a big deal. Thanks!

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Skylane

Intuit Community Champion

I'm not from a CP state but my understanding that there would have to be a marriage not just a high school ring.... is it a rental property or primary residence?

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tlccpasAuthor

Level 3

It's a primary residence.

I wouldn't think there would be tax ramifications, but if there is, it'll affect the price of a new residence that she can afford, so I really want to make sure. She'll buy the new house before the end of the year, before any tax form would be received. A form 1099-S shouldn't be sent since it's not a sale, but I guess we're concerned about what's in the escrow papers. If it were to somehow be considered a sale, and she's owned it for about 5 years, it seems that the $250,000 capital gains exclusion would get rid of any gain/tax anyway. Am I thinking correctly?

BobKamman

Level 15

“The house isn't being sold” – but her half IS being sold. “A form 1099-S shouldn't be sent since it's not a sale” – who made up that rule, you or the title company?

She is selling her half of the house. The fact that the buyer owns the other half, is irrelevant. At least you acknowledge there is a buyer. A transaction with a buyer but no seller is like the sound of one hand clapping.

However, at least one reliable source cites authority that she can claim the $250K exclusion. See

https://www.thetaxadviser.com/issues/2017/apr/tax-issues-nontraditional-households.html

qbteachmt

Level 15

What about mortgages and escrow accounts?

Read the Deed:

John Doe and Sally Smith JTROS (joint tenants with right of survivorship)

or

John Doe and Sally Smith TIC (tenants in common)

Community Property doesn't seem to apply to this deed. Read the Deed.

JTROS means, if John dies, Sally gets all of it. If John buys out Sally, that is going to affect the Deed.

TIC means John dies, and Sally has a new property owning partner. Or, John can sell to Sally, because the property is separate halves.

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