Home Equity Loans - Restrictions?

I buy a house for $100K, make repairs and it appraises at $150K. I then pull out $10K home equity loan to have cash in my pocket. If I sell the property how are the capital gains calculated? Do I pay tax’s on the $50K or $40K (minus all the fee’s of course)?

It is not so straight forward.

Let’s assume that you purchased the property exactly 1 year ago:

Original Purchase Price: $100,000
Plus Capital Improvements: $10,000
Less Accumulated Depreciation: $3,703

NET ADJUSTED BASIS: $ 106,297.00

Sale Price: $150,000
Less Net Adjusted Basis: $106,297
Less Selling Costs: $10,000


Question is how much of the 10K went into your pocket as a GAIN and how much of it just recouped the cost of improvements?

Contact a local title agency and they can give you an exact answer.

Pat Lawson

*All numbers and facts are subject to errors and omissions and are estimates for entertainment purposes only. Contact your a tax professional.