Heloc down payment vs capital gains tax

[Justin Bailey]

So 2 years ago I used a HELOC from my personal home to purchase the 20% down a rental property. I was looking into selling the rental property but would need to use the capital gains to payoff the 20% down. Does the heloc still account for the down payment? Or should I do a cashout refi to payoff the heloc and make my profit smaller?

[Benjamin Weinhart]

Quote from @Justin Bailey:

So 2 years ago I used a HELOC from my personal home to purchase the 20% down a rental property. I was looking into selling the rental property but would need to use the capital gains to payoff the 20% down. Does the heloc still account for the down payment? Or should I do a cashout refi to payoff the heloc and make my profit smaller?

 I think I might understand where you're coming from/where the confusion might lay. Ignore the loan when trying to factor in the possible tax implications as paying off a principal balance doesn't do anything tax-wise. Your "basis" in the property is what the purchase price of it is plus capitalized improvements less depreciation. Except in cases of things like a 1031 exchange, your capital gain is measured on the sale price in excess of the properties basis.