Joseph (an accountant) and his wife Jane (a housewife) borrowed money to purchase a rental property as joint tenants.

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.

Requirement: 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?

Expert Solution

As per the agreement Joseph is entitled to 20% of the profits from the property while his wife is entitled for 80% of the profits from the property, it means the ownership ratio is 1:4 of joseph and his wife respectively.

From the income tax purposes they both can claim tax deduction in the share of income in the property, may be either in the form of rentals or may even be capital gains arising at the sale of such building. If the share of each of the co-owners is clearly defined and is ascertainable,then the respective share of each co-owner shall become taxable in their hand as an individual.

If they decided to sell the property , then they would be required to account for any capital gain or capital loss in their respective legal interest ratio that is 1:4.

ekkarill92 answered 2 years ago

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