Skip to content
Learn
Get Started
Learn SMARTER Real Estate Investing Real Estate Syndications
SMARTER Phases
Strategy Market Acquisition Rehab/Rent Tracking Exit Repeat
Resources & Media
Interactive Bootcamps Self-Guided Bootcamps Pro-Exclusive Videos Events Webinars Podcasts Books Blog Resource Hub Guides
Summer Bootcamps Open for Enrollment
Pick your 8-week bootcamp: Short-Term Rentals, Small Multifamily, or Rookie?
Free Webinars
Real estate investors break down the basics, and share tips on how to get your next deal.
Tools
Calculators
Rental Property Fix And Flip BRRRR Wholesaling Mortgage Payment 70% Rule Airbnb Rent Estimator Rehab Estimator
Software & Services
Tenant Screening Property Management Lease Agreement Packages RentRedi Insurance Pro Partners
Find Deals
Real Estate Listings Find Foreclosures Real Estate Syndications Off-Market Deal Finding
Pro Membership
Get unlimited access to tools and resources that make it easier to find, analyze, and manage deals with confidence!
Build Your Team
Suggested Vendors
Find an Agent Find a Lender Find a Tax & Accounting Pro Find a Financial Planner Find a Property Manager
Vendors & Partners
Build Your Team
Search
Members Businesses Classifieds
Events & Meetups
BPCON2024 Local Meetups
Agent Finder
Investor-friendly agents who get the best deals done.
Lender Finder
Investor-friendly lenders who can get you the best funding for your strategy.
Forums
For You
Newest Trending Unanswered My Discussions Followed Discussions Followed Categories Followed Locations Followed People
General Real Estate
General Real Estate Investing Starting Out Deal Analysis Buying & Selling Business & Marketing Landlording Property Management Reviews & Feedback
Real Estate Strategies
House Hacking BRRRR Short-Term Rentals Mid-Term Rentals Multi-Family Fix & Flip Other Strategies
Finance & Financing
Lending Creative Finance Personal Finance Taxes & Legal Issues
News & Announcements
Official Site Announcements Market Trends & Data Real Estate News & Current Events Pro Exclusive Area
Events & Networking
Events & Meetups Classifieds Off Topic
Blog
General Real Estate
Real Estate News Market Trends Financing Landlording Tips Personal Finance Taxes Opinion
Top Strategies
BRRRR Short-Term Rentals Multifamily House Hacking Flipping
I’m Four Months Into a 1031 Exchange—Now It’s All About Finding the Best Deal in the Haystack
We are less than a month away from listing our Brooklyn, New York condo, which we bought for $375,000 back in 2004, the same week we got married. 20 years, two […]
Seven Reasons Why the Housing Market STILL Hasn’t Recovered From the Pandemic
The pandemic swept through the U.S. housing market like a tsunami. Radical price hikes and all-time low inventory accompanied massive migration away from pricey big cities. Four years later, the […]
Store
All Books
Browse All Best Sellers New Books & Pre-Orders Bundle & Save Books for Beginners
Simplify your goals and find clarity for your investing
Dave Meyer's newest book gives a practical framework to craft and execute YOUR personalized real estate plan.
Save money and time with efficient property management
Make the most of your time and money as a DIY landlord. Pre-order your copy before April 25 for exclusive bonuses!
Home Blog Real Estate Rookie Podcast

Rookie Reply: Is a Cash-Out Refinance Taxable?

Real Estate Rookie Podcast
4 min read
Rookie Reply: Is a Cash-Out Refinance Taxable?

This week’s question comes from Brandon on the Real Estate Rookie Facebook Group. Brandon is asking: On a cash-out refinance, is this considered income? If so, will I have to report it on my taxes?

Real estate investing provides a lot of tax benefits, some that new investors or everyday homeowners simply don’t know about. One of the greatest tax benefits? No taxes on loans and liabilities! That means that the cash-out refinance can be done without paying any taxes on the cash given to you from the bank. But, there are a couple of ways that you could get snagged during tax season if you don’t follow the right steps.

Here are some suggestions:

  • Cash-out refinances are considered debt, not income, from a taxation point of view
  • If you are planning to have your business pay you back for acquisition/renovation costs, be sure you make a record of that so you don’t get taxed on your repayment
  • You may pay taxes on a cash-out refinance if you plan on taking profits from your business
  • As always, consult a tax professional if you have any specific tax questions
  • And more in the episode…

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is Real Estate Rookie episode 202. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, information and answers to your question that you need to hear to help kickstart your real estate investing journey. And today we’ve got another question from the Real Estate Rookie Facebook group, which by the way, if you have not yet joined, it is honestly one of the most active, the most engaged real estate investing Facebook groups out there specifically dedicated towards new investors like yourself.

Tony:
Today’s question comes from Brandon Thomas, and Brandon’s question is: “On a cash-out refi, is this considered income? If so, will I have to report it on my taxes?”

Tony:
Brandon, I love that you asked this question because I think a lot of new investors are probably thinking the same thing. I’ll at least give my answer with a bit of a backstory. So before I started investing in real estate, I remember it was my first big boy job out of college, and I was talking to a coworker and he talked about how he had refinanced his home and he got, I don’t know. $50,000 back. And I was like, “Oh man, that’s great.” I was like, “But aren’t you going to have to pay taxes on that?” And he was like, “No, I don’t have to pay taxes on it.” I was like, “But it’s money that you’re getting. I thought anytime you get money from anything, you got to pay taxes on it.” He was like, “Well, technically it’s a loan. A cash-out refi is you putting a new loan in place. And a loan is a liability. It’s not necessarily an asset. So you don’t have to pay taxes on debt.”

Tony:
If you go out and you get a $500,000 loan for a house, they’re not going to tax you on that $500,000 because it’s a liability you have to pay back. If you go out and buy a new car and spend $30,000 on a car and you get a loan, you’re not getting taxed on that loan because it’s debt that you have to pay back. And a cash-out refinance is the same thing. So to answer the question, Brandon, if you get a cash-out refinance, you are not liable for paying taxes on that money.

Ashley:
That’s 100% correct. And I’ll go one step farther and give you an example of when you would actually be taxed on it. If you have a business entity such as an LLC and the LLC goes and gets a mortgage on a property or cash-out refinance and say you’re pulling out $50,000. If you take that money out of the business bank account, you put it into your personal bank account and you go and put a pool in your backyard with that money. And you have pulled that money out and you’re not going to repay your business back, then you would be taxed on that, and that would be money you were taxed out of.

Ashley:
In LLC, it’s usually put onto your, if it’s a single member, LLC, or even if it’s a partnership, you’ll get a K-1 and it usually passed through entity, they call it, so it shows up on your personal tax return. And it would show that you took an owner’s draw of $50,000 from the company, and then you would be paying the tax on that $50,000 draw.

Ashley:
We talked about in our last Rookie reply about accurate bookkeeping. So if you go and purchase a property and you’re going to do the birth strategy and do that cash out refinance, and you are going to put in $50,000 of your own money, make record of that in the bookkeeping that you are loaning the business $50,000 and the business must pay you back so that when you do go and take that cash out refi, you pay yourself back that 50,000. So that is the one scenario that if you have your LLC, you have your corporation, you have your entity and you do do a cash out refinance, and the business didn’t already owe you any money and you want to pull some money out for a personal expense, then you would be paying taxes on that money.

Ashley:
That’s at least the only scenario I can think of that you would actually be taxed on that money that’s coming out of the entity. But if you are just doing a cash out refinance on your primary residence, or a property you owned personally, that’s a loan that you’re paying back personally so you want to be taxed on it.

Ashley:
Well, thank you guys so much for joining us. I’m Ashley at Welcome Rentals and he’s Tony at Tony J Robinson. And we’ll see you guys on Wednesday when we are back with a guest.

 

 

Watch the Podcast Here

Links from the Show

Connect with Ashley and Tony:

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.