Who has basis?

[ILLMAS]

Scenario: Two friends are interested in buying a property (50%/50% ownership) that is under priced for the value its worth, Paul has no money, so Peter agrees to put in large amount to buy the property, time pases by and the value of the property went up and they refinanced the loan, Peter was able to recooperate his initiat investment and still Paul puts nothing out his pocket. Now both friends name appear on the loan, both are liable, does Paul have any basis on this property?

Thanks

[mcb39]

I wonder what Peter was thinking. I would say that Paul has 50% basis in the property. What was their intent for the use of this property?

[Randall]

How are they organized? LLC, S Corp, just two individuals joint ownership? I thought basis limitation was according to what you actually put in (inside basis, outside basis)? also debt liability comes into play, according to entiy type.

Yes mcb39, what was Peter thinking? Hope they stay friends.

[jainen]

>>Paul puts nothing out his pocket<<

Use the gift basis rules for 1/2 the purchase price. Also note that the new loan had a "large amount" of cash out that is not acquistion debt for purposes of tracing or deducting interest..