Question: My girlfriend and I bought a house together 4 years ago. Now we decide to split and I want to buy her out. We paid $230K for the house. Now it is worth about $260K and we owe about $190K in loan. My girlfriend and I each own 50% of the property. We both are first time home owners and we live in California.
1. How much I should pay her?
2. How do I remove her name from the title?
3. How do I remove her name from the home loan? Do I need to re-finance?
4. What about the capital gain, do I (and she) need to report a capital gain next year? If I sell the house a few years later and the house worth $280K then, will I pay capital gain on $20K (280K-260K) or $90K (280K- 190K)?
5. What are the fees (and taxes) to complete the transaction?
6. Did I left out something?
Your advice will be highly appreciated.
Answer: You really should talk to a decent real estate lawyer. You’ll end up needing his services one way or the other…
I think any money spent on proper representation will be well spent. That’s between you and her. Be very careful when you casually say the “house is worth $260K”. I would factor in the costs you would have paid if you actually sold the house (i.e. for a realtor and closing).
Remember, a house is only “worth” what someone is willing to pay for it.
If you have a problem negotiating a fair amount, the two of you may be better off selling the house, splitting the proceeds, and going your own ways. I think this can be done without too much problem. While I’m not a lawyer, and California law may be different, I’ve heard it is possible to file a “quit claim,” where you girlfriend would remove her claim from the deed. I don’t think there is any way to remove her obligation to repay the loan without refinancing. if your capital gains are less than $500K, you won’t pay a cent of tax. Thank Congress. There will be some fee paid to amend the deed, refinace the loan, and for a lawyer to draw up the papers.
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