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Updated almost 3 years ago,
Possible Tax Upon Sale Following Cash-out Refinance Question
So was wondering about this and didn’t see a straight answer in the forums. Sorry if this is a dumb question. Hypothetical scenario, ignoring closing costs and commissions and fees to simplify things, just trying to gain better understanding.
In this scenario a home is purchased for $100,000 with a $100,000 mortgage.
It appreciates over the years to $300,000, with the current mortgage balance at $75,000.
Then, a cash-out refi is done for $200,000, paying off the $75,000 current mortgage and pocketing the remaining $125,000.
Here’s the question:
If, say a year after the cash-out refi, the home is sold for $350,000, would you pay tax on the current difference of $150,000 ($350,000 sale price-$200,000 current amount owed)
Or,
Would the IRS think you’re trying to evade taxation and tax you on the sale price-the amount owed at the time of the cash-out refi ($350,000-$75,000)?
Thanks in advance, everyone.