How does the IRS deal with profits after a separation when a house sales?
July 102010
My ex boyfriend and I purchased a home 8 years ago. We are both listed as borrowers on legal loan papers. We had worked hard on fixing it and increased its value considerably. The quality of our relationship, however, did not improve or increased and we separated. I moved out of the property a year and a half ago but remained legally responsible for the loan and he still lives in it. Although we are no longer together, we remain good friends. I am looking into purchasing a vehicle within the next four months and I am already sure that I won’t be able to qualify for an auto loan due to the financial responsibility I still share with my ex boyfriend. We have discussed refinancing the home and making him the sole responsible party for the loan and therefore, removing my name from the mortgage and its financial commitment.. Currently, he can not buy my part of the loan out and refinancing will be just to remove me from the papers without taking money from the equity to at least maintain similar monthly payments and hopefully get a better interest rate. We have agreed to sell the home later (still work to be done, not in optimal selling condition) and divide the profits once the sale goes through. If we refinance this loan to his name, how will the IRS deal with my share of the the profits? Since I will not listed as the borrower, I am afraid the IRS will read my gain as a gift and I will be taxed for it. Should I make the refinancing transaction with my ex through the courts to have a legal binding document to fall back to during tax time and for good practices sake? How should I go about this? HELP!
Whether you are on the loan has no effect on the taxes on the gain. Removing yourself from the loan does eliminate your ability your ability to deduct the interest on the loan, but has no other tax implications. The question of whether the gain is a "gift" is determined only by who owns the house, in other words, who is on the deed, not the loan.
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Buying a foreclosure or short sale is basically the same as buying any property on the housing market. You may be able to get a good deal on a foreclosure or short sale if the market is full, but the market value and property value in your area will drive the pricing and financing the loan. Watch this Expert Real Estate Tips video for more information about short sales and buying a foreclosure.
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