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Original price $1mm
+ Improvements $200K
- $100K depreciation
= $1.1mm Basis?
Sales price = $1.5mm
Difference = $400K

Let me point out that the recapture of the $100k in depreciation will be recaptured, which is taxed as ordinary income, not as capital gains.

So when I sell I pocket $400K which I pay capital gains on.

So, there are two issues with this statement:
1) As pointed out above, depreciation recapture is taxed at ordinary income rates, not as capital gains. So, yes, that $100k is taxable, but it's not taxable at capital gains rates.
2) We don't know how much you owe on your mortgage(s). Unless your indebtedness plus the costs to sell were exactly the same as the basis of $1.1MM, what you get in your pocket will be different than $400k. What you get in your pocket will be the sales price, minus any indebtedness (like your refinanced mortgage), minus any costs to sell (like commissions, recording costs, title insurance, etc.).

Again using the example above: what you’re saying is if I’ve refinanced multiple times and had taken out $400K cash and when I sell I won’t have any cash to pay the taxes on the $400K gain. Correct?

Incorrect. In fact, if you had started out with a $1.2MM mortgage, and refinanced enough that you had taken $400k in cash out, so that your indebtedness ends up being $1.6MM, you would have to bring money to the closing table to pay the extra $100k you owed plus any selling costs. But you would still owe taxes on the $400k. That's the risk in taking cash out mortgages on property.

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