Sale of 50% of home

What is the name of your state? California .. I'm trying to determine the income tax result of selling a 50% interest in my home to an unrelated person and then sharing living there.

1. Does the IRS consider selling 50% but continuing to live there "a taxable event"?
2. If it is treated as the sale of my home, would it be subject to the normal rules for excluding any gain on the sale?

[abezon]

1. Yes.
2. Maybe. If the total gains on the house are less than $250,000, you might consider "selling" the house for its fair market value to A&B, where A is you. That way you get to exclude the gains & step up your basis at the same time. Structure the transfer so that "A conveys his/her entire interest in the house to A&B, as joint tenants with right of survivorship" rather than "A conveys a 50% interest in the house to B".

Be careful, there are property tax repurcussions also. I believe you can avoid being reassessed if you are just adding a joint tenant and you are the original joint tenant. Contact your assessor's office for instructions on how to avoid the reassessment.

I was told today by an "enrolled agent" that the sale of less than 100% just reduced my basis in the home by the sales price. Ie if my basis was $200k and I sold 50% for $110K, my basis just became $90K and nothing would be reported in the year of the sale.

How sure are you guy's that he's wrong?

[abezon]

He's probably right. That's why I suggested conveying your *entire* interest in the house to yourself & your friend, rather than selling 50% to your friend. If you want to be really careful, you could sell the entire house to person X, & person X would then sell the house to you & your friend as joint tenants.

[abezon]

He's probably right. That's why I suggested conveying your *entire* interest in the house to yourself & your friend, rather than selling 50% to your friend. If you want to be really careful, you could sell the entire house to person X, & person X would then sell the house to you & your friend as joint tenants.