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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. What do they report on their taxes going forward?
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