Cash out Refinance Tax Implications
There are several posts on this topic but I am still struggling with a clear understanding.
From what I have read on BP, it seems like there is no taxes that will need to be paid when one does a cash out refinance. If this is the case then why don't investors (especially flippers) use this as a tax strategy to avoid any gains tax on the property. What I mean by that is; before someone sells a property they refi to the max allowed LTV (say 80%) and then sell the property after the refinance. If done correctly the refi closing costs would be less than the gains taxes they would need to pay for the sale.
Ex.
Purchase price $150,000, renovation costs $20,000, ARV $250,000
After renovation the investor would refi to 80% LTV (or the maximum possible amount). In this case they could pull out $50,000 minus say $3000 in closing costs.
After the refi the house would be sold for a gain of only $30,000 instead of $80,000.
Could this be used as a valid tax strategy?