Tax free? - Posted by Mike

Posted by SuperCat (IL, KY) on March 11, 2002 at 15:16:21:

You bought house for 60 and sell for 90 means a gain of 30 assuming no depreciation or other costs. Whether the property is mortgaged has no bearing on capital gains. If it was that simple, then every free an clear owner would take out a 100% mortgage before selling.

Tax free? - Posted by Mike

Posted by Mike on March 11, 2002 at 09:36:42:

I was talking to a “studying accountant” friend of mine about paying taxes in real estate. I wanted to know how to get around paying so much due to capital gains. He said that if I purchase a $100,000 house for something like $60,000 then refinance at 80% ($80,000) and put $20,000 in my pocket tax free. Then he said to sell at $90,000 and I would only have to pay taxes on $10,000. Is this correct or is he planting a seed of misfortune?



Re: Tax free? - Posted by Brad

Posted by Brad on March 19, 2002 at 24:13:50:

Do a 1031 exchange!!! This will allow you to sell the 90K house and put 30K divided however you would like into 3 other properties! Just make sure your 3 other properties don’t exceed 180K! ((200% Rule)) In addition, try and talk to a CPA or a Tax Attorney and they can help with this! (((Only problem is that you can’t touch any of the money!!))) If you buy correct you should have 3 houses rented and making a positive cash flow. Next, you can take a HE loan out on one of the houses and utilize that money to purchase even more houses!

Re: Tax free? - Posted by Dave(WNC)

Posted by Dave(WNC) on March 14, 2002 at 01:43:38:

Why would you buy for 60 refinance for 80 then sell for 90 in the first place?

You should buy for 60, (re)finance for 80, stuff 20 in your pocket tax-free. That part you got right, but you should stop there and go long with a tenant paying the mortgage. You can then enjoy a $2,182 deduction for the next 27.5 years.

Unless you are allergic to landlording hold and go long.