Skip to content
Buying & Selling Real Estate

User Stats

13
Posts
6
Votes
Kevin Ludwig
  • Rental Property Investor
  • Colorado
6
Votes |
13
Posts

Avoid Capital Gains by Paying off another Mortgage?

Kevin Ludwig
  • Rental Property Investor
  • Colorado
Posted Nov 25 2022, 11:49

Hello All!     Haven't found this answer. If I am selling an investment property (1 year primary, 6 month months rental investment), and take the $76,000 gain to pay down another rental investment property's mortgage in Colorado, does this avoid capital gains tax? Any help is greatly appreciated!

User Stats

220
Posts
135
Votes
Bob Willis
Pro Member
  • Investor
  • Curtis, NE
135
Votes |
220
Posts
Bob Willis
Pro Member
  • Investor
  • Curtis, NE
Replied Nov 25 2022, 11:58

No - there is no way to avoid the tax with the scenario you describe. If you want to move back into the property for another year (thus making it your residence in two of the past five years, you can avoid the tax on the gain).The only way to defer the payment of taxes on the gain is a 1031 exchange. Unfortunately you will need to purchase another property to leverage the 1031. Your existing property does not qualify. This is not my area of expertise but I believe what I say to be accurate. 

User Stats

13
Posts
6
Votes
Kevin Ludwig
  • Rental Property Investor
  • Colorado
6
Votes |
13
Posts
Kevin Ludwig
  • Rental Property Investor
  • Colorado
Replied Nov 25 2022, 12:04

Thank you!!! I thought this might be the case but I had to confirm. Sounds like I need to start shopping for another investment property as I have a buyer and a price lined up for my old rental home. 

IntellCRE logo
IntellCRE
|
Sponsored
Supercharge Your Multifamily Investing with AI Source, screen, evaluate, underwrite, and act on hundreds of deals with data and confidence!

User Stats

14,041
Posts
11,307
Votes
Chris Seveney
Pro Member
#2 All Forums Contributor
  • Investor
  • Virginia
11,307
Votes |
14,041
Posts
Chris Seveney
Pro Member
#2 All Forums Contributor
  • Investor
  • Virginia
Replied Nov 25 2022, 12:19

@Kevin Ludwig

No. Only way to avoid is by a 1031 exchange

User Stats

655
Posts
821
Votes
Jeremy H.
  • Rental Property Investor
  • Lafayette, LA
821
Votes |
655
Posts
Jeremy H.
  • Rental Property Investor
  • Lafayette, LA
Replied Nov 25 2022, 12:55

You'd need to live in the property for 2 out of the last 5 years - can exclude up to 250k in capital gains or do a 1031 exchange, if I'm understanding this correctly. 

IT doesn't sound like your set up to do either, but you're close. I'd try and finagle a little bit to save on those taxes somehow

User Stats

7,395
Posts
3,024
Votes
Basit Siddiqi
Pro Member
  • Accountant
  • New York, NY
3,024
Votes |
7,395
Posts
Basit Siddiqi
Pro Member
  • Accountant
  • New York, NY
Replied Nov 26 2022, 09:44

No - Paying down a mortgage(decrease in liability) does not decrease the capital gains you have.