[WSBARP] REET Question/Exemption

[Mark Anderson]

Just some thoughts on this - please don't judge me too harshly.  (insert smiley face).

I suppose you could characterize at least part (if not all) of the payment from the Borrower to the Ex as a repayment of the amounts that Ex has transferred to Borrower over the years.  You say there is nothing in writing that ever created an indebtedness between Borrower and Ex.  On its face, then, this just looks like "moving money around" between Borrower and Ex (especially if they ever had a joint bank account and they are just splitting up joint assets).  If this amount (the "Repayment") is less than 50% of the equity, the amount of the Repayment could be characterized as a gift and the difference between the Repayment and 50% of the equity would be the amount that is subject to excise tax.

In my opinion, because Ex did not become indebted on the note, there is no debt to be relieved of.  Thus, there would be no excise tax due on any debt transferred.  Although none of the checkboxes on the Real Estate Excise Tax Supplemental Statement appear to be on point, the one that is the closest is A.2.  It would read

"Grantee (buyer) will make payments on 0% of total debt of $0.00 for which grantor (seller) is liable and pay grantor (seller) ($______ )."

Mark B. Anderson
ANDERSON LAW FIRM PLLC
821 Dock St  Ste 209  PMB 4-12
Tacoma, Washington 98402
+1 253-327-1750
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marka at mbaesq.com<mailto:marka at mbaesq.com>
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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of samuel at meylerlegal.com
Sent: 12/27/2022 3:47 PM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>; wsbapt at lists.wsbarppt.com
Subject: [WSBARP] REET Question/Exemption

Listmates,

Co-habitants go on title of property together but only one of them ("Borrower") is liable on the note due to the lender.  Borrower makes payments on the loan directly while the other co-habitant ("Ex") makes payments to the Borrower for half of the loan payment.  There is nothing in writing expressly stating that Ex is indebted to Borrower for 50% of the mortgage payment, but that is essentially what Ex pays to borrower for several years.

Borrower and Ex call it quits and wish to remove Ex from title.  There is some equity in the property now.  Borrower is willing to pay Ex 50% of the equity value and excise tax would be due on that amount.  I am questioning whether excise tax should also be due on 50% of the underlying debt given that the Ex was never personally liable on the note due to the bank.  It could appear to someone as though Ex was liable to Borrower for half the mortgage and has now been relieved of that liability.

Have you dealt with this before?  Would excise tax only be due on the value of the equity that Borrower pays Ex for?  What exemptions apply?  Thanks for the input.

Sam


Samuel M. Meyler
Meyler Legal, PLLC
1700 Westlake Ave. N., Ste. 200
Seattle, Washington 98109
Tel:  206.876.7770
Fax:  206.876.7771
Email:  samuel at meylerlegal.com<mailto:samuel at meylerlegal.com>

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