Is this legal???

Hey there all. I was just talking with a loan officer about his strategies for flipping houses, and he made a comment about maxing out a home equity line of credit right before listing the house, pay it off after the sale, and therefor minimizing the taxable amount for capital gains. Will this really work? What would the consequences be?

Thanks,

Mike

Capital gains have nothing to do with how much you borrow. I think your loan officer is a little confused.

Mike

I think the LO is VERY confused…If you borrow the money to invest in a business, be it real estate or other, you can deduct the interest and the loan fees (and even the mileage for driving around getting the loan), etc. on the home equity loan, but it’s a separate transaction from the sale of the property…

I think what the LO is referring to is that he’s supposedly paying less capital gains because of less money coming back to him at the sale…But it doesn’t work that way when you report the sale to IRS for capital gains treatment…

This guy needs to see a good CPA…Otherwise, he’ll have to see a good attorney later…