Legal Question in Real Estate Law in Utah
Peter and Mary wish to buy a home together. Peter will finance half of the purchase price and Mary will pay cash for her half. Mary must wait until after her current home sells in order to contribute her half in cash. Peter has a relative, Paul, that has enough cash to cover Mary's half, if her old home does not sell in time to close on the new home. The concerns are: 1. If Paul simply gives Mary the cash to cover her half until her home sells, would Paul be subject to capital gains tax? 2. If, in order to avoid capital gains tax, Paul is named on title as part owner...how then does Mary go about buying Paul's half of the home after her home sells (Paul would not make any profit on the deal)? 3. If Paul is named on title as part owner, is he subject to tax implications as far as owning a second home? I know this is complicated, I'm trying to understand all of my options. Thank you!
1 Answer from Attorneys
Paul is subject to capital gains tax only if he makes a profit, and then only on the profit he makes.
Naming Paul as part owner will not affect capital gains tax, but gives him security for the loan. Mary pays Paul the money, and quit claims his interest in the house to her.
Paul may be subject to the tax implications for owning a second home, which implications are that the property tax is paid at a different rate for his half - if the county so elects.
The simplest way to do this is for Peter and Mary to buy the home, Paul provides financing under a trust deed note with Mary as borrower. When Mary gets her money, she pays off the loan, which satisfies the trust deed note and and releases the lien.
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