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When you say YOU owed him $100,000., how did you operate this "partnership"? If you were 50/50 "partners", did you report this business activity as a partnership for tax purposes? Please explain how you would owe him $100,000. personally.
It will affect the tax treatment.
We were a LLC, but reported as a partnership for federal tax purposes. I agreed to pay him the $100000 after we closed because I had been unable to contribute capital to the business. He was essentially bankrolling the operation. I just contributed a lot of sweat equity.
OK, I'll presume all the accounting was done properly for the partnership & essentially you owed him $100,000. for your share of the initial capital that he contributed on your behalf.
That being the case, if you were to satisfy your debt obligation by transferring the real property to him, in 2012, you would have a capital gain of $60,000. on the exchange of the real property for your debt. The classification of the gain between long & short term would depend upon the length of time you owned the real estate when you make the transfer.
I've owned the property for two years. Is the capital gains rate 15%?
You "partner" would not have any gain or loss on the transaction. For him, it would be the same thing as purchasing the property for the $100,000. that was advanced on your behalf.
You tax on the capital gain would be long-term & the actual tax would depend upon the amount of your other taxable income, but would be at a maximum rate of 15%.
Plus any state taxes depending upon your state of residence & the location of the real estate.
Thanks so much! You answered exactly what I needed to know.