Capital Gains Tax Deferment

[Nicholas Benoist]

The scenario: An LLC owns a rental property valued at $500k. There is a $200k mortgage remaining on the property. A home equity line of credit (HELOC) has been established on the property for a $200k line of credit. This LLC now uses this HELOC for a flip project. This flip project ends with $50k in profit. The HELOC is paid off and the whole $50k profit is put into the rental properties mortgage. The HELOC gets re-evaluated and credit line increased to reflect the decreased mortgage. 1. Would Capital Gains Tax need to be paid from the profits of the flip if the whole profit was going to pay down the rental properties mortgage (company debt)? 2. Is there anything else in this scenario that is illegal or could get a company into trouble?