Posted by E.Eka on October 06, 2003 at 14:23:06:
I’m a Income tax analyst and these are my thoughts.
Rick I think you were referring to the homestead exemption rule that allows “homeowners” who live in real property for 2 out of 5 years, the ability to keep any gains on the sale of their PRIMARY residence. The amount is up to $250,000 for singles and up to $500,000 for a married couple. In a nutshell, regardless of how you structured the deal with your business partner, his name is on the deed. He was entitled to the tax depreciation on his return as well as the exemption of capiral gains tax. The thing is, the IRS would look at your situation as a renter-landlord type. Isn’t that was usually happens when you rent to someone? They pay your mortgage etc.
One thing to consider though is that your business partner can not claim the capital gains tax exemption because although the partner’s name is on the deed, the dwelling wasn’t his primary residence. He’ll have to pay capital gains if there is any.
I’m pretty sure I’m right here, but if someone else can dispute, I’m willing to listen.