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Refi-Taxes & ownership status

Posted by Janet on June 17, 2003 at 9:32 AM

Hi Ward!
We currently have 2 homes. The 1st hm we bought WAS owner occupied since 1998 till we bought the 2nd hm last yr, which is under a trust owned by my LLC. The 1st hm is now a rental. We filed taxes stating that the 1st hm was owner occupied, and the 2nd hm was under the business. Now that we are trying to refi the 2nd hm because the int rate is 10.75%, and sell the 1st hm so we have some investment income, we don't want to have to pay a huge tax penalty after the 1st home is sold, if we state that it is in deed a rental. So my questions are:

1. Do you recommend that we first sell the 1st hs as owner occupied, then refi the 2nd hm later as owner occupied? or

2. Refi the 2nd hm now as a rental (under the LLC, using my personal gaurantee) which the int rate will be around 6-7% fixed or 3.95% ARM, and then selling the 1st hm at the same time?

3. Will we have to pay a tax penalty/ capital gains if we sell the 1st hm as a rental?

4. Is there a tax penalty if we decide to change ownership on paper between the 2 properties in the middle of the tax yr?

5. Approx how much would are tax penalty/ capital gains be if we were to sell the 1st hm as a rental, so that I can qualify for a lower int rate on the 2nd hm?

Overall, we are trying to refi the 2nd hm at the lowest rate (owner occupied status) without having to take a lrg tax hit on my rental that is filed as owner occupied. We spoke with our tax consultant, and he recommended that we sell the 1st hs first since it is filed as owner occupied. Then refi the 2nd hm later as owner occupied, unless we decide to refi it as a rental and pay a little higher rate than the current market. What do you suggest?

Thanks for advise!


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