I bought a home for $385K close to 1 year ago. I put a down payment of $90K. I also spent $30K fixing it up.
The $90K down came from a refinance of a different property. Ignoring 1031 options, .. If I sell the house now, will I need to pay TAXES on the $90K as though it's profit? I hope not because it's just my down payment coming back to me that I am already paying for over 30 years in a different loan.
Can someone explain how this works?
@Jason J. there's not enough info to truly answer your question. You may or may not pay some tax depending on what you adjusted cost basis is. But the rough answer is no you will never pay tax on the $90K down payment. That is not profit.
You will pay tax on the difference between your adjusted cost basis and your net sale. Your adjusted cost basis is the purchase price of $385 +the improvements of $30 -depreciation (maybe $10k ish).
So your adjusted cost basis could be like $405K ish. If you sell it for $530K with $30K of closing costs then your net sale is $500K and you made $95K of gain. You will pay tax on that.
Thanks Dave that helps a lot!