Capital Gains...please Help!
i recently refi-ed a property and took out about 50k. now i am thinking about selling the building, which would net me virtually no money at closing. at the end of the year, will i have to pay capital gains on the property, or will the fact that the respa showed that i made no money on the sale be enough for me to dodge paying taxes on the 50k i took out on a refi?
thanks!
You may want to read my thread for the answer is here look for Wexeter's response.
http://comm.thecreativeinvestor.com/ViewTopic36051-23.html
Your taxable profit is the difference between your cost basis and your sale price. Your mortgage loan balance has nothing to do with the capital gains calculations.
NewKidInTown2 is right on the money. You would still have a capital gain if you simply sell the profit. You can always do a 1031 exchange into another rental even if there is no net cash proceeds.
[addsig]
how would that 1031 exchange work? would i have to sacrifice the cash that i took out at refi into another building, or could i hang onto the cash and just put the proceeds gained at closing into the next building?
eric
There are essentially three guidelines that you need to follow in order to complete your 1031 exchange transaction and defer 100% of your capital gian and depreciation recapture taxes.
(1) Buy replacement property that is equal to or greater in value than your relinquished property (trade equal to or up in value).
(2) Reinvest all of the net cash proceeds, if any, from the sale/close of the sale transaction. If there is no cash, then there is no cash. You would not need to replace the cash that you have already pulled out.
(3) Replace the mortgage value on the replacement property equal to that paid off on the sale of your relinquished property.
As long as you have met these three requirements in your situation you will have deferred 100% of your capital gain, even if there is no cash involved in the closing.
[addsig]
...... so, I sell my rental for 220K, pay 20K in costs, pay off a mortgage of 100K (100K cash at table held by 1031Agent).
IF I were taking it, I would owe taxes on 220-20- base cost (123+7closing=130K)=70K (plus recapture of depreciation) for taxes.
BUT with a 1031 exchange I can quickly :
Buy a 221K house w/100K downpayment and remaining loan OR
BUY 5 100K houses w/20% downs...
or 10 100K houses w/10% downs... Or...
do I have it?