Cash Out Refi Tax Implications

[Jake Kucheck]

This is probably one of those things I should just go ahead and ask my CPA, but I thought I would see what the experts here thought first.

I was wondering if a cash out refi or massive home equity line could be used to shield an individual from capital gains tax upon sale. So in theory, if there was a ton of equity in a property, could they cash out just prior to selling, take the HELOC or Cash Out re-fi money tax free, and then sell to cover all liens on the property and have a much reduced "profit" from sale, so much so that they wouldn't owe any capital gains. Are there pre-payment penalties or other clauses that would prevent this? Please chime in with useful info on this topic.