Real Estate Tax Question...

[jAZ]

3 people own a house (all 3 names are on the deed). The house is sold (lets say $99K) and by contract, each person is to receive 1/3 of the proceeds of the sale (33K each).

How do you calculate the capital gains tax on that sale?

Is there a single tax rate for the sale (ie, 20% of the gain on the entire property)? In which case each person would pay 1/3 of that tax on the total gain.

Or do the proceeds flow to each individual's personal tax return to be calculated based on their own private tax rate (which in some cases could be lower than 20%).

I'm negotiating an agreement which has the following language:

[I]“One-third of the capital gains taxes due, if any, shall be the responsibility of each co-owner. Each co-owner agrees to hold the other co-owners harmless from capital gain taxes beyond the one-third share. Distribution under this agreement may be withheld until proof of any tax due has been provided.”

[SBK]

Each person is responsible for their own gains. That tax is only for the gain though, so taxes won't be that high unless the home was bought for $1.

[StcChief]

If they roll the profit into another real estate (house etc) with in ~1yr no gains I believe.

[Amnorix]

The gain would be the difference between the sale price and purchase price + any capital improvments made to the property. Example -- if they spent $1,000 to fix the roof, or something, while they owned it, that amount would reduce the gain recognized upon sale.

Each person has separate responsibility for stating the gain on their individual tax returns, as the property is owned individually (i.e. not through some investment vehicle). There are methods of possible tax deferment, as nm-dbf suggested, but that seems beyond the scope of your question.

Hope this answers it for you.

[RINGLEADER]

Each person is responsible for their own gains. That tax is only for the gain though, so taxes won't be that high unless the home was bought for $1.


Pretty much what the others have said Jaz. Although I'm not sure you have a year to do a 1031 exchange. You should talk to a real estate attorney if there's potentially a lot of money involved (and actually even if there isn't).