80/20 On A Rental...captial Gains
I have a friend who is considering purchasing a rental property with an 80/20 loan. However, he is being told that if he ever sell the house and doesn't reinvest in a new rental property, that there is a capital gains penalty because of the type of loan.
This makes no sense to me. Capital gains is based on the purchase price, improvements, and selling price.
One thing that may explain the situation is, he doesn't own his own home and doesn't have a current mortgage. So he is being told he is getting a first time home buyer owner-occupied loan, even though he has no intent of occupying it. Is that feasible? Maybe that is why the capital gains issue is coming up?
What am I missing?
Has anyone heard of such a thing?
[ Edited by MichaelDoherty on Date 05/21/2004 ]
never.
I have the same understand of cap gain you do.
NOW if he owner occupies one of the units, he coould get some preferential tax treatment.
The question is:
Is this is primary residence or is it investment property? Regardless of the loan structure, one will then be able to determine tax treatment.
primary residence = single not married = $250k "tax free" movement every two years. Married = $500k
Investment property = w/o 1031 exchange = cap. gain @ ~28-33% on the gain in the property. With 1031 exchange = no taxes on gain if you transfer to like kind loan ammount and value.
If you are unsure about any of this, serch 1031 exchange companies in the internet goto the IRS web pages and search "ask questions" tools...