Investment Property Sale Tax Question

[Darsh Patel]

Hi Everyone! 

I sold 4 properties in 2022. The total net proceeds to me from the sales was $85K because I had loans on all 4 properties. I spoke with my CPA and he said that I would have to pay taxes on the difference from my sale price and the original purchase price of each property. Even though I had loans on all 4 properties. This for some reason doesn't seem right to me because I am not seeing all of that cash. To give an actual example. I bought one of the properties for 99K in 2017. I refinanced it with a loan balance of $140K early in 2022 and then I sold it for $170K in October 2022. So, does this mean I would have to pay taxes on 71K (Sale price-original purchase)? Or just $30K (sale price-current loan balance)?

[Matt Devincenzo]

Your accountant is correct...why you may ask? Did you pay taxes on the ~$41K that you received when you refi'd? The answer is no, so when you say you didn't get that cash...it's actually you didn't get that cash at sale, you got it in 2017 and it was tax 'deferred' until you sold.