So here's the scenario; I am in work to get a re-fi on my house with some cashback and, there is a good to excellent chance I may get a job (same company) out of this God forsaken state which would result in selling of this house.

So the question is; Using simple numbers; if I take out a cash option ($100K) and bring the total amount owed to $400K then, in less than 6 months (before 31 Dec) sell the house for $900K - what taxes will be owed? (Capital gains considered after/with the sale of the house)


A. The $100K upon close of the re-fi?

B. Only the $500K realized from the sale?

C. The $500K PLUS the $100K because the house was sold and the total is considered part of capital gains?

D. Or?

Just trying to plan ahead for a (hopefully) just in case event.

I am not a lawyer and this is not legal advice.

In general the IRS does not consider cash out money as income because you have to pay it back.

They do not care how much you owe on a property when you sell it.

You pay the capital gain on the difference between on what you paid and what you sold it for.

There are deductions allowed from the profit if you borrowed the money to fix the property for sale (capital improvements) that must be documented.

There are other nuances that are best discussed with a tax lawyer or tax accountant.

If you meet certain criteria, you may not have to pay any money in Capital Gains.

https://www.investopedia.com/a...italgainhomesale.asp

KEY TAKEAWAYS
You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly.

This exemption is only allowable once every two years.

You can add your cost basis and costs of any improvements you made to the home to the $250,000 if single or $500,000 if married.

With the way prices have gone up in my part of San Diego, we should well exceed the $250K Capital Gains threshold even after a cash back re-fi

The refi and mortgage mean nothing to the IRS (there may be a small subtle issue certain types of closing costs like a buy down may be deductable).
Your on the hook for the tax on the difference between your cost basis (including those capital improvements you made) and your selling price. Your exclusion reduces that by either $250K or $500K (if MFJ).

Take what you sell it for, subtract any selling costs (realtor, attorney), subtract your purchase price, subtract any improvements, and that is your gain. The refinance has nothing to do with it wrt your primary residence. An investment property is a different matter entirely.

As an aside, why would you complete a refinance now if you are going to sell in six months? Is it so urgent to liquidate some capital now that the closing costs of the mortgage are worth it?

Won't some of the Capital Gains be offset, assuming he buys another property ? But since he would be moving of of Kalifornia, the next property probably won't be as expensive.

quote:

Originally posted by LS1 GTO:
With the way prices have gone up in my part of San Diego, we should well exceed the $250K Capital Gains threshold even after a cash back re-fi

$500k if married filing jointly.

Doesn't matter if the wife was around when you bought the house, only that you were married in the tax year that you sold.

You have to own it for 12 months to be capital gains, otherwise it's ordinary income.
Subtract your purchase price and selling costs from the selling price for the net gain.
The financing part is irrelevant for taxes.
Since this is real money, consult an expert to see what they say and how they may be able to help reduce any tax hit.

quote:

Originally posted by Aeteocles:

quote:

Originally posted by LS1 GTO:
With the way prices have gone up in my part of San Diego, we should well exceed the $250K Capital Gains threshold even after a cash back re-fi

$500k if married filing jointly.

Doesn't matter if the wife was around when you bought the house, only that you were married in the tax year that you sold.

Thanks, actually forgot about it being doubled.

Sigcrazy7, nothing set in stone however, if I get raise to move out of this state and moving costs are covered, who am I to say no?

quote:

Originally posted by LS1 GTO:
Sigcrazy7, nothing set in stone however, if I get raise to move out of this state and moving costs are covered, who am I to say no?

If you get a raise to move out of Kommiefornia and you don’t say “Heck YES!” (Or perhaps something stronger than Heck), I think you may be the one who is crazy.

quote:

Originally posted by slosig:

quote:

Originally posted by LS1 GTO:
Sigcrazy7, nothing set in stone however, if I get raise to move out of this state and moving costs are covered, who am I to say no?

If you get a raise to move out of Kommiefornia and you don’t say “Heck YES!” (Or perhaps something stronger than Heck), I think you may be the one who is crazy.

Eggzactly!!!!