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Updated over 6 years ago on . Most recent reply presented by

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James R. Copeland
  • Investor
  • Port Hueneme, CA
34
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Cashout Refi to avoid cap gains when selling?

James R. Copeland
  • Investor
  • Port Hueneme, CA
Posted
Hey there, just a theoretical question: Borrowing money via a loan or cash out refi isn't taxed as income since it's borrowed. If you were to sell a rental house without a 1031 exchange, I *believe* the portion that you have to pay capital gains tax on is the sale price minus the amount owed, right? So if somebody owned a 1 Million dollar rental property and sold it outright, they'd pay cap gains on $1M. If, on the other hand, they did a cash out refi to take it to 80% LTV, aka borrowed 800k against it, then sold it, wouldn't they only owe cap gains on the 200k remainder? I'm assuming one of my assumptions is incorrect. Can somebody clear this up for me?

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Wayne Brooks#1 Foreclosures Contributor
  • Real Estate Professional
  • West Palm Beach, FL
13,509
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Wayne Brooks#1 Foreclosures Contributor
  • Real Estate Professional
  • West Palm Beach, FL
Replied

No.  Your loan amount has bearing on cap gains tax due.....it’s is calculated on your costs of the property verses your sales price, less actual selling/closing costs.....doesn’t matter if you borrowed 100% or paid all cash.

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