Loan on Property 1 for Downpayment on Property 2

Member since 2019 · 120 posts · 26 votes

Hello! I have a question. If I got a home equity loan for Property 1 and used the proceeds as downpayment for Property 2 and then got a 2nd loan for the remaining 75% purchase price for Property 2, when I sell Property 2, can I use the Property 1 loan as part of the cost basis for computing Property 2 capital gains?

Every month, property 2 has been paying most of the mortgage on that Property 1 home equity loan. The only part that Property 1 pays on that loan is the escrow for property tax & insurance for Property 1.

Thank you for your insight.

0 Reply

15 views

Most Popular Reply

Tim DelaneyPro Member

Buffalo, NY · Member since 2018 · 790 posts · 530 votes

Like I said, I'm not an accountant so you should probably talk to one. Where did you get that calculator? I don't see any capital gains on that, just an adjusted tax basis. If you take the $653K out of loans and put it in the cash line there would be no change to the total adjusted tax basis and therefore capital gains would be the same.

Podcast Guest on Show How to Buy Yourself a 6-Figure Income Stream

1 Reply

See this reply in the discussion

4 Replies

Jump to latestLatest

Sort by

Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
Loans have nothing to do with cost basis of a property for determining capital gains.
Podcast Guest on Show How to Buy Yourself a 6-Figure Income Stream
1 Reply
Diane Tycangco
OP
Member since 2019 · 120 posts · 26 votes
1y
but I borrowed money to use as a downpayment. I did not use my own money. when I used a capital gains calculator online, if I put zero money down and put the 2 loans, the cap gains is a lot lower than if I just recorded 1 loan and entered the money from the downpayment loan under cash.
0 Reply
Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
Like I said, I'm not an accountant so you should probably talk to one. Where did you get that calculator? I don't see any capital gains on that, just an adjusted tax basis. If you take the $653K out of loans and put it in the cash line there would be no change to the total adjusted tax basis and therefore capital gains would be the same.
Podcast Guest on Show How to Buy Yourself a 6-Figure Income Stream
1 Reply
Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1y
Quote from @Diane Tycangco:

Hello! I have a question. If I got a home equity loan for Property 1 and used the proceeds as downpayment for Property 2 and then got a 2nd loan for the remaining 75% purchase price for Property 2, when I sell Property 2, can I use the Property 1 loan as part of the cost basis for computing Property 2 capital gains?
Every month, property 2 has been paying most of the mortgage on that Property 1 home equity loan. The only part that Property 1 pays on that loan is the escrow for property tax & insurance for Property 1.
Thank you for your insight.
You need to look at purchase price to determine cost basis, not how you financed the purchase. Your closing statement should have the purchase price and you add any capitalized costs.
Private Mortgage Financing Partners, LLC
Website View Page
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.