Investment Property Sale Tax Question

Boston, MA · Member since 2016 · 60 posts · 15 votes

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)?

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Matt Devincenzo

Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes

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.

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Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
3y
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.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
3y
Quote from @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)?

Your CPA is correct.
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Linda WeygantPro Member
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
3y
Quote from @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.

This is one of the best explanations of this concept I've ever seen.

@Darsh Patel - If you don't have a CPA, see if you can find a talented real estate focused CPA who can help you get all the deductions you're legally allowed to take on these transactions. There may be other expenses you can add to the purchase price to lower your profits.
Best of luck!
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
Quote from @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)?

Your accountant is somewhat correct, you also have to take depreciation on those assets so you will actually pay more in taxes. For example lets say the house was $275,000 and yuo depreciated it over 27.5 years or $10k per year. Over five years your cost basis went down by $50k so you also pay taxes on that $50k cost basis. Loans make ZERO difference in taxes when it comes to a sale.
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Carini Rochester
Investor · Rochester, NY · Member since 2016 · 576 posts · 358 votes
3y
Borrowed money gets taxed when you pay it back, not when you borrow it.
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