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I wanted to know if this was true:

If I have a house that I bought for $40K
I take $40K out in an equity loan.
I sell the house for 100K.

Would I only be taxed on the $20K ($100K - $80K) remaining?

rkb
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Absolutly Untrue.

L
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No - your basis is the price you paid for the place. Your
gain here is $60K, assuming zero for things like RE agent
fees, home improvements which increase your basis, etc.
Whether you have a loan on the property or not is irrelevant.

But if this is your primary residence, and you've lived here
for at least two years before you sell, you pay no tax because
of the exemption of up to $250,000 on sale of your primary
residence ($500K for married filing jointly).

As always, see tax stuff and talk to someone who knows
your situation, etc, etc...

--Foobarista
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If I have a house that I bought for $40K
I take $40K out in an equity loan.
I sell the house for 100K.

Would I only be taxed on the $20K ($100K - $80K) remaining?


No. Your capital gain is the net sale price minus the net purchase price. You can also subtract the cost of capital improvements (not repairs) from the capital gain. The mortgage balance has no impact on your capital gain.

JDOyster
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