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I have a rental property with a friend who decided to take money out of the house (me and him on the title). So I decided to buy him out. We signed a mutual release that for 80K he is transferring his interest of the property to me and my spouse (now we are on the title as joint tenants). Mortgage has been refinanced under me and my spouse as well. The house was appraised at 420K.

So, in short, he was removed from the title of the rental property and my wife was added to it and he received 80K in the process. My question is do I pay capital gains here or just him?
 

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Someone can correct me if I'm wrong, but capital gains taxes are only paid on a deemed disposition. You have not disposed of anything.
He may or may not have CG taxes depending on what the initial cost was.
 

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If both put money into buying then I would think it would be a deemed disposition as for all intents and purposes, he is selling out.
He is the one who bought at whatever price and has now sold his share for cash so AFAICT, only he should be paying capital gains taxes on his profit, if any.


I'm not sure whether the spouse being on the title is enough to be considered owner for capital gains purposes. For example, a non-registered taxable account can be joint but if only one spouse funded the account, all the income and capital gains are reported by that one spouse instead of being split between the two spouses.


Cheers
 

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You paid him $80K for his share of the house, which affects your adjusted cost base. But you had no capital gain. He may have had a gain or loss, depending on the circumstances.
 
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