Buy out from relative

What is the name of your state? MA

What is the name of your state? MA

My husband and I are in the process of buying out my brother in law. We currently own the home as tenants in common. The money factor has all be figured out and we are going forward with the purchase. The new deed will say we purchased his half of the home for 250,000. We originally paid 170,000 and that amount was split 85K each.

If my husband and I sell the home in the future, how can we prove we actually paid 335 for the home (250 and 85). The home has been in the family for 39 years and there will not be a title problem.

We are afraid this will present a problem with capital gains in the future.

Thanks

When you record the deed, you'll have to file an excise tax statement & pay excise taxes on the buy-out portion. Keep the papers as proof that you paid him $250,000. You can also have him sign something saying that the price was $250,000.

You should also be sure the escrow company sends him a 1099-S, since the gain will be taxable to him (he didn't live there 2 of the last 5 years.

that's the easy part

Thanks, that was the easy part. The problem comes into play where we have already purchased this two family home for 170, split between the two of us. Now, with the cost of houses, the value of just his half is 250,000. So, in essence we will be paying 335,000 for the whole home.

There is a deed out there stating we purchased for 170,000 - 7 years ago, but when the new one is recorded it will look like we have purchased it for 250,000, not the 250,000 + what we have already paid.

Can you do a ryder or something on a title??

Not a big deal today but if we sell in 15 years, we want to make sure we won't be hit with excess capital gains, seeing as we paid more for the house than is acutally on the title.

The current title lists both of you as tenants in common. That indicates that you have 1/2 the equity already & 1/2 the existing basis. The transfer deed will say 'brother & sister as tenants in common convey to sister the real property located at ___ and legally described as ______". Or it will say 'Brother conveys his 1/2 interest in the house he owns as tenants in common with sister and legally described as_______ to sister.' Either phrasing shows that brother owned only 1/2 the house & you owned the other half. Just pay a real estate attorney a couple hundred to write up the deed for you. Then you'll have peace of mind.

Thanks, we are having a new deed drawn up saying we own all the house and a transfer of title stating he is selling to us for 250,000. Concern is more if we sell the house.

We didn't actually purchase it for 250,000. We purchased his 1/2 for 250,000 and our original half for 85,000. Total we paid 335,000.

He has already purchased another house. His capital gains would be 165,000 but he is rolling that into his new place. We we purchase a new home for 400,000, currently the way it is to be set up would mean we would have 150,000 capital gains (tecnically speaking) not 65,000 capital gains.

Can the new deed/transfer of title be drawn up to say we are purchasing his half for 250,000 and in total we have paid 335,000? Can the lawyer do that for us?

Thanks

No, you need to keep track of both transactions. The first closing statement shows that you own 1/2 the house & paid $85k for it. The new closing statement will show that you used to own 1/2 the house & now own all of it & paid $250 extra for the second 1/2. Total = $335k.