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Financial Planning / Tax Strategies


Subject:  Re: Shared rental property Date:  9/9/2011  1:36 PM
Author:  JAFO31 Number:  113924 of 127616

Tiddman: "Three people jointly own a rental property. They inherited it so all 3 are on both the deed and the mortgage. On their taxes they have all been claiming 1/3 of the P&L and depreciation expenses."


"They are looking to refinance, and one of the 3 has had loss of income and would probably not qualify for the new loan, so they will refinance with just two of them. Further, the two participating in the refinance will put in different amounts of cash which will be used to pay down the mortgage and pay closing costs."


"Say the property is worth $300k and has a mortgage of $250k which will be refinanced to $210k. $45k will have to be put in at closing to pay the loan down and pay closing costs, and one person will put in $35k and another $10k."


"So the result will be three people on the deed but two on the mortgage, and possibly different ownership percentages and cost bases for each of the 3."

I cannot answer your tax questions, but you have some assumptions in your question that I believe are not correct.

I assume that each one inherited an undivided 1/3 interest in the property and that there have been no subsequent conveyances to change that arrangement.

I further assume that you mean two on the mortgage note and all three on the mortgage. Or are you stating the the new lender will be satisfied with a lien on an undivided 2/3rds interest in the property?

Why would ownership percentages change? You did not mention any conveyances among the owners.

And why would cost bases be so different. As I understand the rules, principal paydown does not change the basis of an owner. "Closing costs" covers a wide array of costs, so of which do not affect basis and some of which might affect basis.

In addition to Peter's questions, what arrangements are the owners intending to make? It is not at all clear to me what the owner intend or desire.

Regards, JAFO
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