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I have owned my new condo for less than a year and it has appreciated over 30 percent. Can I take a second and or HELOC and sell and only pay tax on the difference between the money I owe and the profits I make. Eg.
480K purchase with note for 380K. Value of 600K. Take out second up to 95% LTV. Sell for 600K and only pay tax on the 5%? Just wondering. Thanks in advance.
Posted by David Krulac on June 21, 2005 at 18:41:01:
it was your personal residence
it was a second/vacation home
you are a dealer
However one strategy might be to borrow with a HELOC, keep the property, either live there or rent it and use the loan proceeds for additional investment. Loan proceeds are tax free. But as JT states the loan balances are NOT a factor in calculating your capital gains.
In calculating gain on a property, the amount that you owe in debt against the property is NOT relevant to taxable gain. The fact that you mtg or don’t mtg has no bearing on the equation.
You simply deduct your cost basis and any deductible expenses (improvements, interest, utilities, selling commissions paid, etc.), from your selling price, and that equates to the taxable gain… taxed as ordinary income, since you have held it for less than a year. Any payoff of debt is not part of determining taxable gain… This would be way too easy of a business if all we needed to do prior to selling anything would be to mtg all the appreciation, then sell…
You might consider mortgaging the property for now, to access the appreciation in liquid capital, then holding the property for the balance of one year, then either sell which converts the gain to LTCG, or 1031 exchange into a like kind property… which defers all tax liability.
How do you feel about the charitable remainder trust as presented by R. Dale West as a way to avoid capital gains? Ofcourse that depends a lot on the individual situation, but it may be offerd as a suggestion to be analyzed.
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Unfortunately while at the conv I did not get to hear all of Dale West’s Dog and Pony show… So while I am familiar with the overall concept, and it seems like a great answer to the problem of tax deferral or avoidance, I can’t really speak with any authority on the issue.
I do believe that it is viable… and something to be reviewed as an option in this case… Good idea…
Posted by celebrityv on January 11, 2006 at 06:16:12:
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