If I were to purchase a home valued at $100,000 for $75,000 cash. Then refinance the home for the full $100,000 and bank the money. Never live in the home. Then sell it for $100,000 would I have to pay capital gains on the $25,000 profit on the property even though there was no profit on the property at the time of sale???
Thanks for your time
Steve
You have to use the cost of the home then ad the price for improvements. That will be your cost basis. Then you need to subtract the sale price - any costs associated with he sale ie transfer tax, recording fees and seller paid costs. That difference is what you pay capitol gains on. What you owe has no effect on what you owe the IRS.
Example:
Purchase Price $75000
Improvements 5000
Cost basis $80,000
Sale price on home 100,000
Total fees 9,000
Net from sale 91,000
Net on property $91,000
Cost Basis $80,000
Capitol Gain $11,000
Please consult your cpa but this is in a nut shell how it works.
Good Luck
thanks for the relpy ramona,
so your saying I will just have to pay capital gains on the 11000. is thereany other way to avoid this other than a 1031. :-\
Yes there is a way to avoid capitol gains. It has to do with having your self directed IRA purchase the property using an LLC and you being a beneficiary or a managing member of that llc.
It is a little complicated and as far as I know there are only a few accountants around that know how to do it correctly.
But in a nut shell…your IRA owns an LLC and the LLC buys options on property but when using an IRA there is not capitol gains when the IRA distributes the property.
I am not an accountant so please read as much as you can on this. I can give you a number for a guy that knows these very well but he charges a heavy duty penny to get it set up.
Usually 3 to 5 k for the set up.
Other then getting that fancy there really is not a good way to dodge the capitol gains. I can tell you however that if you hold a property more then a year then you pay much less gains then if you sell it within a year. (1 yr or less is usually at your current tax bracket of earned income) and anything longer is considered long term capitol gains and I believe it is a streight 15%.
Good Luck and keep thinking outside of the box 
Ramona
You might want to talk with John Micheal about this he is a CPA and attorney in this forum under Asset Protection and LEGAL.
He would be a great person to contact HE KNOW HIS STUFF!! and he is a MODERATOR