Geez Helen, I don't know. What do you think?

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Re: Refi and Cap Gains

Posted by Jk (the other Jk) on March 15, 2004 at 6:34 PM

In Reply to: Refi and Cap Gains posted by Alfred -- Trainee on March 15, 2004 at 6:17 PM

: Hi Ward,
: This is more of a CPA question but maybe you can clear something up for me. I'm thinking of refinancing my 3 rental properties (got them as forelosures) the main reason being to increase my monthly positive cashflow. If I did a cash out refi and took all of the equity out that I could now, that would be tax free dollars for me to use. But when I sold them in a few years, would I only have to pay capital gain tax on the profit that I realize from that sale (the profit would be small because all the equity would've been taken out earlier) or would I have to pay cap gain tax on the profit amount realized between my original buying cost and my selling price? Thanks in advance, Alfred

Nice try. You will have to pay cap gain tax on the profit amount realized between your original buying cost and your selling price minus improvements. Technically you are suppose to pay cap gains even if the refi amount goes above the purchase price, but alot of people get away with this one. Of course if you do a 1031 exchange into other like kind income property you can avoid cap gain tax.


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