Joseph (an accountant) and his wife Jane (a housewife) borrowed money to purchas
ID: 2334600 • Letter: J
Question
Joseph (an accountant) and his wife Jane (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Joseph is entitled to 20% of the profits from the property and Jane is entitled to 80% of the profits from the property. The agreement also provided that if the property generates a loss, Joseph is entitled to 100% of the loss. Last year a loss of $40,000 arose. How is this loss allocated for tax purposes? If Joseph and Jane decide to sell the property, how would they be required to account for any capital gain or capital loss? Joseph (an accountant) and his wife Jane (a housewife) borrowed money to purchase a rental property as joint tenants. They entered into a written agreement which provided that Joseph is entitled to 20% of the profits from the property and Jane is entitled to 80% of the profits from the property. The agreement also provided that if the property generates a loss, Joseph is entitled to 100% of the loss. Last year a loss of $40,000 arose. How is this loss allocated for tax purposes? If Joseph and Jane decide to sell the property, how would they be required to account for any capital gain or capital loss?Explanation / Answer
ANSWER:
The loss of $40,000 can be allocated in adjusted gross income of Joseph as a reduction for the year, therefore being able to the tax liability of Joseph. If Jane decides to sell the property, in that case all profits and losses from prior years have to be reviewed plus the selling price of the property to determine over income amount and then split between 20% Joseph and 80% to Jane.
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