Updated over 1 year ago on . Most recent reply
Paying off HELOC to avoir Taxes
Hello All,
We recently bought a new primary residence using a HELOC and we now plan on selling our former one. We've never rented it so it cannot be claimed as a rental in the sale. The house is worth $850K with a mortgage balance of $350k and a HELOC of $200K (used).
- Can we claim after the sale that we’ve made $850k - $350k - $200k = $300K or does IRS not consider the HELOC in the sale please?
- Is it possible to avoid paying taxes if we just re-invest all the money to pay down the principal on the new mortgage (residential)?
TIA!
Most Popular Reply
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
You don’t save taxes by using the money to buy another principle property.
AND!
It doesn’t matter what you owe on the property. All that matters is what you net after selling costs minus what you paid for it.
.
If you paid $300k and sell for $850k…
If you owned it less than a year, $550k of regular income at full tax rates state and federal. Not good.
If you owned it between 1 & 2 years, 15% state and federal taxes on $550k
If you owned it more than 2 years you get $250k or $500k tax free and owe taxes on $300k or $50k.
This is true if you paid the property off or you owe $900k on the prowprty and have to pay $50k to close. You are paying taxes on the gain, not the cash received.