[WSBARP] REET Question/Exemption

Thu Dec 29 12:35:12 PST 2022

Thank you for weighing in – I appreciate hearing your "contra position."

It might be good to consider, for the purposes of a DOR audit, whether 1) the Ex paid half of the debt directly to the lender, or 2) the Borrower paid all of the debt directly to the lender and the Ex only gave money to the Borrower (as indicated in the scenario presented).

Another factor that might affect the analysis is whether or not title is held as tenants-in-common or as joint tenants.

And yes, I am enjoying the holidays!

Mark B. Anderson
ANDERSON LAW FIRM PLLC
821 Dock St  Ste 209  PMB 4-12
Tacoma, Washington 98402
+1 253-327-1750
+1 253-327-1751 (fax)
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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Craig Blackmon
Sent: 12/28/2022 9:38 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] REET Question/Exemption

And now, the contra position.... ;-)

It is my understanding that the DOR takes a very broad view of the issue. If they audit the transaction, they will ask for proof that all payments on the debt were made by Borrower. If in that audit the DOR learns that Ex in fact paid one half of all payments, I am afraid it will conclude that Ex was de facto liable for half the debt. So relieving Ex of that debt is subject to the excise tax.

Furthermore, I don't see any "gift" here. So I don't think the Supp Statement is appropriate.

I think the answer is found in WAC 458-61A-204 regarding TICs:
(5) The sale of an interest in real property from one or more joint tenants or tenants in common to remaining tenants or to a third party is a taxable transaction. The taxable amount of the sale is the total of the following:
(a) Any consideration given; and
(b) Any consideration promised to be given, including the amount of any debt remaining unpaid on the property at the time of sale multiplied by that fraction of interest in the real property being sold.

The regulation does not differentiate liability vs. non-liability on the existing debt. So unfortunately I think excise tax is due on one half the existing debt, as well as the cash paid for the equity. If that amount is less than one half the assessed value (the presumed "gross selling price") then the difference is the amount that is exempt from the tax.

I hope all of you are enjoying the Holidays!!!

Craig
Craig Blackmon, Attorney at Law<https://www.mywsba.org/PersonifyEbusiness/LegalDirectory/LegalProfile.aspx?Usr_ID=000000029240>
92 Lenora St. #103, Seattle WA  98121
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On the blog: Co-Ownership of Real Property by Single People<https://www.fsbolawyers.org/blog/tenants-in-common-agreement>
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On Wed, Dec 28, 2022 at 2:39 PM Mark Anderson <marka at mbaesq.com<mailto:marka at mbaesq.com>> wrote:
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
+1 253-327-1751 (fax)
marka at mbaesq.com<mailto:marka at mbaesq.com>
www.mbaesq.com<http://www.mbaesq.com/>
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From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of samuel at meylerlegal.com<mailto:samuel at meylerlegal.com>
Sent: 12/27/2022 3:47 PM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>; wsbapt at lists.wsbarppt.com<mailto: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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