Taxes -- Am I Missing Something?
Ok here's the senarios--
Lets say that I have a house that is worth 160k and the note is at 130k. If I sell the house at 160k I pay taxes on the 30k income.
Lets say that i have another house that is worth 160k and the note is at 130k. What if I take out a second loan for 30k, I am under the impression that I don't pay taxes on the loan until I sell the house (so the 30k is tax free/deferred). If I then sell the house for 160k making $0 profit how does uncle sam get his taxes (my money)? Is this some kind of loophole? It's a little obvious in my opinion.
the 30k is simply a loan. you dont pay taxes on a loan..when you sell the property you have realized a 30k profit which you'd have to pay taxes on..no loophole here..uncle sam will collect his share.
I'm not a tax guru, but this is how I understand it.
Your purchase price is your "basis"
You're taxed on the difference between the Basis the sales price (minus the depreciation recapture)
hibby76 is right on.
Your taxable capital gain on the sale of a property is determined by your purchase price, your sale price, and your capital improvements. Your loan balance is irrelevant.
Let's say you pay $150K for the property but only finance $130K of the purchase price. When you sell that property for $160K, your taxable capital gain is $10K -- the difference between your purchase price and your sale price. The maximum capital gains tax rate right now is only 15%
If the property is a depreciable property, then the allowed depreciation over your holding period would also be recaptured at 25%.