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Thank you Peter for your response.

So if I understand you correctly, in the following example:?
Original price $1mm
+ Improvements $200K
- $100K depreciation
= $1.1mm Basis?
Sales price = $1.5mm
Difference = $400K

So when I sell I pocket $400K which I pay capital gains on.
But when I refinanced, say I took out $75K and used it for a different investment (not an improvement on the same property). Was this $75K get absorbed in the terms of refinance or what am I missing as it looks like free money? I would think the $75K it is reduced from the $400K.

The upshot of all of this is that it is quite possible that your cash out refinances can leave you without enough cash after the sale to pay the taxes due on the sale. That can be a very uncomfortable position to be in.

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?

Thanks again.

- Colin
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