Capital Gains W/ HELOC
Question:
If we purchase a house using a HELOC, is that HELOC balance used as a payoff at settlement? ...or is it considered to be free and clear because the HELOC is based off another property?
Is the Capital Gains on the property for the sales price or the difference betweeen the HELOC and sales price?
I'm just confused, I want to get a HELOC... but I also want to make sure I'm using it appropriately with Real Estate.
Capital Gains are based on the gain of the property. It doesn't matter how you pay for it. If you buy a property for 100k and pay cash, and sell for 125k you still have 25k gain (approx--not considering other factors such as deprecation, etc). If you buy that same house with a loan of some type or an HELOC on another property you still pay 100k and sell at 125k. The gain here is still 25k.
Hope this helps. GOOD LUCK
Thanks,
Makes sense....It clears up a few things.
One more question:
If you pay cash for 100k....settle for 125K...wouldn't you have a Capital gains of 125K if it was free and clear? How do you counter that 100K that you paid for it so it is 25K and not 125K?
I'm still a bit confused.
The gain is onl the difference betwen what you paid and what you sold it for minus some of the costs to do business....
B
Quote:I'm still a bit confused.
smallinvestments,
In a nutshell, you are NOT taxed on your sale price. You are only taxed on your profit.
Correct capital gains taxes are only calculated on your profits. If you make an extra $10k profit on a property you will have more capital gains taxes. If you buy a property at $10,000 and sell for $60,000 you have a $50,000 gain. If you buy a property at $950,000 and sell for $1,000,000 you still have a $50,000 gain.
The capital gains tax would be the same. There are a few other factors involved but this is only a very simplified explaination.
GOOD LUCK