Expert: Dick Dennis - 9/13/2010

Question
Hi,
My husband has 3 brothers who each own a 25% share of the house they grew up in. The 2 oldest brothers still reside in the house with their mom.
When their father passed away 9 years ago he put the house in a trust for the mother that has recently been dissolved. In the trust mom owned 1/2 of the house, the four brothers owned the other half. When the trust was dissolved Mom's shares were divided amongst the brothers so that they now all own equal shares.
As I said the 2 oldest brothers still live in the house and want to remain there. The 2 other brothers including my husband have their own houses and want to sell their shares to the brothers who live in the house.
Can you tell me what is the best way yo go about this? Will the 2 selling brothers have to pay capitol gains tax? Could the brothers who live in the house "gift" the portions of money to the brothers who want out instead? We live in a different state than the house in question. Are there different laws that apply to us? Anything else we need to know?

Thanks,
Beth

Answer
First of all, Beth, it is best to hire a good real estate appraiser. Or the brothers may agree upon using three separate real estate brokers (or agents who have much experience in the area of the house) to give their estimate of value. The brothers would then use the average value from the three estimates and that would be the value the brothers would settle upon at what price the two brothers who do not live there get paid for their interests.

The two brothers who are giving up their interests may indeed have a capital gains to be concerned about. To settle that, it will be necessary to consult with a CPA, tax attorney or other tax expert as to how to handle the division of interests and any taxes.

There may be another concern: If the two brothers who live there have been living there and not paying rent to the "pool" of owners (including their mother), the IRS would expect rent having been paid from the time they moved in. If they didn't pay any rent (for the two brothers' interest who do not live there) then the IRS will expect something.

A good tax expert could probably solve this matter for you, all the more reason why you should consult one. While you're talking to the tax expert, you might ask about any gifting as you present it. I suggest you do not hesitate in consulting with that CPA, Tax attorney or other tax expert. I do wish you well.

Dick Dennis
dixiedee13@AOL.COM