Re: How can I buy out property from partnership? - Posted by Frank Chin
Posted by Frank Chin on July 18, 2007 at 03:56:38:
When we acquired the place in 1984, we paid 180K, and we spent 25K fixing it. By 1990, it was worth 250K. Her half at FMV would be 125K, regardless of whether we spent 10K on fixup, or 40K on fixup. The needed fixup might have increased the sales price of the property in 1990 by a few thousand. But since it was on things like the roof, furnace etc., it’s stuff that should have been done, and no one would pay 25K extra because it’s got a new furnace. The cost of the fixup would only affect her basis, and thus her capital gains alone. I had yet to have a cpaital gains as I haven’t sold yet.
We had an appraisal done, consulted some RE brokers on how much the place can be sold for, and that was the value arrived at.
Are you saying that the transaction should be based on the purchase price of 180K and 25K for fixup, for only 205K??
No!! Market conditions dictate. I wouldn’t go for a 205K sales price in 1990 myself if my partner offered half of 205K. I rather sell it to a stranger off the street for 250K.
Its quite possible that under other market conditions, say a declining market, that even if we bought it in 1984 for 180K, spent 25k on fixup, and its only worth 195K. Then the sales should be based on 195K, and the partner would then have a capital loss, but that didn’t happen.
The first mortgage was in both our names, and the refi was in my name only.