Cost Basis


R

Rita

I am taking out a 2nd mortgage or maybe home equity loan to
pay off my ex for his share of our home. Can I add this to
my cost basis of the home? I don't want to pay capital
gains on his equity should I turn this into a rental.

Thanks!
 
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P

Paul Thomas, CPA

Rita said:
I am taking out a 2nd mortgage or maybe home equity loan to
pay off my ex for his share of our home. Can I add this to
my cost basis of the home? I don't want to pay capital
gains on his equity should I turn this into a rental.
Not in a division of assets, no. Your cost basis would
include the entire original purchase price of the house.
Any amount you pay him in a divorce is just a division of
assets and does not increase your basis.
 
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B

Benjamin Yazersky CPA

Rita said:
I am taking out a 2nd mortgage or maybe home equity loan to
pay off my ex for his share of our home. Can I add this to
my cost basis of the home? I don't want to pay capital
gains on his equity should I turn this into a rental.
taking a mortgage doesn't add to basis

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----
 
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A

A.G. Kalman

Rita said:
I am taking out a 2nd mortgage or maybe home equity loan to
pay off my ex for his share of our home. Can I add this to
my cost basis of the home? I don't want to pay capital
gains on his equity should I turn this into a rental.
A mortgage is not a capital improvement. It does not add to
cost basis. As it is not acquisition debt, you can deduct
the mortgage interest you pay on only $100,000 unless the
loan plus other loans exceed the fair market value. Then the
deductible interest may be limited to an amount less than a
loan value of $100K.
 
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S

San Diego CPA

Rita said:
I am taking out a 2nd mortgage or maybe home equity loan to
pay off my ex for his share of our home. Can I add this to
my cost basis of the home? I don't want to pay capital
gains on his equity should I turn this into a rental.
If you're using the loan proceeds to buy out your ex's share
of the house, then yes, the amount your pay your ex (i.e.,
the purchase price - not necessarily the total loan amount)
is added to your cost basis.

If you convert to a rental, there's no gain to recognize
until you sell the property.
 
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