Land Purchase Refi

[David Allday]

I purchased land with a 2400 sq ft. shop in 2022 for $100,000. The property appraised 3X what I purchased so I recently did a cash out refi and will have a new loan of $200,000. I will use the roughly $100,000 of equity to invest in other properties. I plan to keep the shop and a little piece of the land while selling the remaining acreage. I will sell enough acres on the property to total $200,000 which equals my refi loan balance.

So, does the method I use help any with taxes/capital gains? Or will it still show $100,000 profit and have to pay capital gains on the $100,000?

Thanks

[Henry Clark]

You will have to pay taxes.  The question is do you hold it for a year to get 20% long term capital gain rate or sell it and pay ordinary income rate.  

Have your tax person run the numbers.  Probably won’t matter since you’re paying interest on the $200,000.  

Do you wait a year pay the 20%?plus the say 7% interest for a total of 27%.   Or do you sell quick and only pay maybe 28% ordinary income.  

[Basit Siddiqi]

The question is how can you keep your refinance and sell parts of the property(Assuming the land / shop are on the same lot and part of the refinance).

Regarding the capital gain / tax calculation, you have to first figure out your basis in the part that is sold.