Developer · Lone Tree, CO · Member since 2013 · 52 posts · 15 votes
Hi Everyone,
I'm hoping someone can help me clarify this question;
I own several rentals in Denver (free and clear). I want to pull some cash out and buy more rentals,(seems to make sense at these historically low rates). Does anyone know how this would be treated tax wise? Would that be treated as ordinary income and taxed at my current tax rate? Thank you for any help!
Dee
Yes just to expand on the other responses we are all assuming that by "cashing out" on the properties that you own you mean you will be doing some sort of cash-out refi and not actually selling the properties.
If you were selling the properties there would be tax implications but in obtaining financing secured by your properties there are none.
I think that's what you are wanting to do anyways but just wanted to clarify.
Dave
@Dee M. - like Jassem said. Not only is it not taxed, the interest is tax deductible. Unbelievable but true. So make that money work for you instead of sitting there locked up. I work with a lender that can get loans done quickly where traditional lenders can't. PM if interested or just in general. Your past 2.5 years is impressive. We are on similar paths!
Dee
Yes just to expand on the other responses we are all assuming that by "cashing out" on the properties that you own you mean you will be doing some sort of cash-out refi and not actually selling the properties.
If you were selling the properties there would be tax implications but in obtaining financing secured by your properties there are none.
I think that's what you are wanting to do anyways but just wanted to clarify.
Dave
I generally agree with everyone else, and this is one of the great things about rental real estate. If you put some of the proceeds into fixing up the rentals you already have, you may even get some up-front deductions there. After you invest the proceeds into more rentals, you can take depreciation and interest deductions on those properties as well, which will really help your bottom line.
If you own these properties in your own name or disregarded LLC, there isn't much to worry about. However, if you've done anything like acquire the properties in a like-kind exchange, contributed them to a partnership with someone else, or if you own them in an entity (other than disregarded LLC) that has other activity, you should check with a CPA or attorney who understands the nuances of real estate investment taxation.
Also, in order for the interest to be fully deductible, the refinancing proceeds must be reinvested. If you want to spend some of the proceeds for non-business purposes, you should check with someone who knows how to structure the refinance in a way that maximizes your deductions. There are ways that a professional can help you, and it will save you money in the long run to plan ahead of time.