Legal Question in Real Estate Law in Pennsylvania

Hi, Thank you for your question,

I am sorry to hear about the difficult situation in which you find yourself. I know that investing with relatives as partners is usually not a very good idea. You did not state whether or not you and your cousin have a written agreement as between yourselves which sets forth, not only the percentage interest that each of you has, but also sets forth how the maintenance and repair requirements of the property will be addressed.

In Answer to your questions -

1a. . Take a look at the deed you and your cousin received from the seller when you purchased the property. It probably states that title was transferred to you and your cousin. "as joint tenants with a right of survivorship". The significance of how you took title is that a joint tenant cannot sell his share to a third party because in joint tenancies, each joint tenant owns an "indivisible share in the property to the extent of the percentage of his ownership interest. Therefore, you would not be free to transfer your share to an unrelated third party.

b. You could transfer your 25% share to your cousin but you would be cheating yourself out of your 25% share of the investment and that is assuming that your cousin is willing to accept your 25% interest.

(i) Just because you would be willing to transfer your share to your cousin without any payment to you, you cannot assume that your cousin will accept this transfer because he -does not want to pay 100% of the roof repair costs; and

(ii) If your cousin accepted the transfer of your 25% of the title, you might have to file a gift tax return, even if a gift tax was not due on the transfer.

2. Even if the rents that are being paid by any other tenants are low, you are required to report 25% of the rental income on your income tax return. if you are audited by the Internal Revenue Service, they will impose a penalty on you for failure to report this rental income on your income tax return;

3. From what you have stated in your facts, this investment should not be a losing proposition to you. because if your cousin is using part of the building for his business, he should be paying rent and 25% of that rent belongs to you. So, even if you do not receive 25% of the rental income that your cousin should be paying for the use of part of the property for his business, the Internal Revenue Service will impute to you 25% of the the fair rental value of that portion. rent that your cousin should be paying and they will impose on you a penalty for your failure to report your share of 25% of the fair rental value of the portion of the property that your cousin is using for his business.

4. Lastly, you are entitled to deduct 25% of the property's expenses, 25% of the property taxes, as well as 25% of the annual depreciation of the building on your Income Tax return.

Kindest Regards,,

ANDREA G. TILLIS