Taxed on cash out refi Money after a selling

[Gulliver R.]

Hello all, I know that asking tax questions will most likely lead to a “talk to a CPA” or “it depends” answer. But here we go anyway!...... If I do a cash out refi on a non-owner OC investment property that I own in Feb 2018, then sell that property in July 2018, do a 1031 exchange, then roll those proceeds over to the new property being purchased, in 2019 will I have to pay taxes on that cash I pulled out from the cash out refi? Thank you!

[Michael Plaks]

@Gulliver R.

One thing at a time, do not throw everything on the plate.

Financing and capital gains are not related. You buy some land for $100k and eventually sell for $150k - you have $50k capital gain. It is the exact same gain whether you paid $100k cash, financed $50k or financed $100k.

Accordingly, cash-out refi is not taxable when done. It also does not change future capital gain. Yes, you can think of it as "paying for the refi cash when the property is sold" - which is not technically correct, but is economically correct.

If you do a 1031 - capital gain is postponed, including the tax on the refi portion.

You cannot sell and then 1031. 1031 is done instead of sale and must be set up before you sell. There's no proceeds to roll over. You never touch the money during an exchange. If you touched the money - you lost the game.