Whether you are related or not, capital assets can be owned jointly by husband and wife, brother and sister or even unrelated parties with two or more interested investors or owners. Gains and losses from income produced, or selling the asset, are split proportionally based on the percentage ownership of each individual. Example:
Todd, Matt and Dave (now 40 years old), have been friends since high school. They decide to purchase a parcel of land together that costs $100,000. Matt is going to invest $50,000, Dave $30,000 and Todd $20,000.
Ownership (Basis) for each would be as follows:
Matt 50% - ($50,000/$100,000)
Dave 30% - ($30,000/$100,000)
Todd 20% - ($20,000/$100,000)
Suppose they rent the land to a hot dog vendor in the first year for $8,000, to whom is this income taxed and how much for the first year?
Matt: $4,000 taxable rental income – ($8,000 x 50%)
Dave: $2,400 taxable rental income – ($8,000 x 30%)
Todd: $1,600 taxable rental income – ($8,000 x 20%)
Suppose they sell the land in the third year for $160,000, what is each owner's taxable gain?
Matt $30,000 long-term capital gain – ($60,000 profit x 50%)
Dave $24,000 long-term capital gain – ($60,000 profit x 30%)
Todd $16,000 long-term capital gain – ($60,000 profit x 20%)
Wash & Bargain Sales
TaxesWhen you file your taxes this year make sure that you have claimed all taxable income. Here are ten things that you might not know are taxable
InvestingLearn how a monthly investment of just $100 can help build a future nest egg using properly diversified stocks or stock mutual funds.
Personal FinanceIncome is the money you or a business earns by providing goods or services, or through investments.
RetirementIt may be better to leave your assets exposed to the tax man when you're saving to retire.
InvestingNever before has rental revenue represented such a large share of income gained by American households.
TaxesHere's a rundown of the specific tax rules that apply to homeowners renting out a vacation property.
InvestingDiscover what JPMorgan Chase gets for its minority interest acquisition of ETF provider Global X, and learn about what it means for the company's ETF business.
Managing WealthInvesting in land can yield big returns. But investors should consider their goals, as well as the following details, to make the deal a success.
RetirementGovernment benefits can cost you big money! Know the income thresholds before you file.
Managing WealthOwning rental property can be a rewarding and profitable experience, but it comes with some real risks.