Home Equity Loan vs Paying Capital Gains

[Jaclyn C.]

Is it smarter to take out a home equity loan to pull equity from a rental property to avoid capital gains from the a sale of the property?

[Dave Foster]

@Jaclyn C., A cash out refi certainly avoids taxes on gain from a sale.  And if you sell the 1031 exchange will also let you indefinitely defer those same taxes as @Brian Ellwood, said.

Which way to go is a function of your proformas. A refi will increase expenses which will decrease NOI on your current rental. And you won't get access to 100% of the equity. A marginal rental will never get better if you add debt. But a good performer can many times sustain a little more debt and still perform well enough to make the refi worth it.

Break out the spread sheet!