Sally,

This situation really doesn't have to be very complicated. Instead of trying to understand the law here, I would recommend sitting down with a lawyer and explaining exactly what you are trying to do.

I would recommend Ballard Escrow. (and let me say I do not have any affiliation with them and it would be illegal for me to receive any consideration for the recommendation) Their pricipals are former lawyers and can handle the entire transaction for you. I have used them in the past and they are thorough and professional.

Sally,
Needless to say, you will be entering a complex arrangement if you are half-owner as an 'investor' and your brother is half-owner as 'owner occupied'. Assuming you jointly held the property for an additional two years or more then sold, he would possibly be better off enjoying a tax free capital gain as 'owner-occupied' but may be precluded from doing so if you take title under your new arrangement using an investment framework (LLC, etc). Minimally, it would make for complicate tax reporting. I would also guess that your desire to add him to title comes along with financial responsibilities. The moment you attempt to refinance (add him to the mortgage) you will likely encounter a tax event and owe King County a 1.788% excise tax of the agreed 'market value'. Plus you will owe the IRS a 15% tax on any price difference (gain) between your original purchase and when you allow your brother to buy-in. So you see, your generousity may not be without significant expenses for yourself and him. Also, joining financial resources by adding him to the mortgage means his fiscal habits and yours will impact each others credit worthiness. With the current Buyer's Market, it may be prudent to explore other options. Maybe you can hold on to the current condo and consider purchasing a different property with your brother. One that you both treat as an investment. That way you start clean and don't incur any immediate "tax debt", etc and he gets his foot in the door. (Pun intended.) Try thinking beyond your immediate asset to identify what might work best. Mixing two different investment objectives (ownership vs investment) may prove unwise down the road especially when each objective is held by two separate parties. Minimally, I would suggest consulting a CPA that really knows real estate.

Another option is for you to put it in a land trust. Then sell 50% of the beneficial interest in the trust to your brother. (An attorney might suggest 49% interest so that if there's a disagreement, one of you--in this case you--will have the power. However, a land trust can be structured so that each party has 50% of the beneficial interest, but that you would retain the power of direction. So, just make sure you use an attorney who knows land trusts.)

Recognize that simply selling him half the property could trigger your lender's Due on Sale clause. It's not a major concern in today's market (what lender would want to foreclose on a performing loan?), but it is something you should be aware of.

Using a land trust gets around that. The Garn St. Germain act specifically provides an exemption from the Due on Sale provisions for land trusts (and certain other transactions). A land trust would also enable your brother to take the tax and interest deductions for his share. Although the trustee of the trust is the actual owner, the trust itself is personal property, not real property. The IRS allows owners of a land trust who own more than 10% of the trust (which your brother would) to take the deductions that he'd be able to take as owner of the property itself.

Another option is to put the property into an LLC. Then you sell half the LLC to your brother. Most attorneys are going to be more familiar with this way of doing it, and a lot of investors do this, too. Still, it's not as secure as a land trust.

There's more information about land trusts at http://www.landtrust.net

Hope that helps.

As tenants in common, you could sell a 50% deeded interest to your brother and you are on title for the remaining 50% interest on the deed. Then when you sell you can possibly 1031 exchange your 1031 interest and he can claim Section 121 treatment for a $250,000 exclusion. Check this out with your attorney.

I strongly recommend having an attorney draft an agreement for you. Regardless of how great your relationship is with your brother, I have seen so many families quarrel over real estate when something went wrong or something unforeseen happened. There are a lot of details to consider and I would only trust an attorney to make sure that you are protected.

P.S. What a great brother you are!

The best way would be to consult with an attorney. Basically you would all be placed on title for the property. The attorney would draft the papers for the actual agreement of how much share each person is entitled. The attorney would also bring up other legal issues and make certain they are all addressed. For example, what happens if one person wants to sell and the other owners do not?

You can do it verbally as well but when it deals with real estate, I always encourage documentation to back the agreement up. That way there is no room for misunderstandings of which could cause unwanted turmoil whenever you decide to sell in the future.

Recommendation, consult with and have an attorney draft it up.