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MyVirtualCPA, Accountant
Category: Capital Gains and Losses
Satisfied Customers: 16576
Experience:  CPA with tax experience ready to help you with your capital gains and loss questions
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I have searched online very specific scenario regarding

Customer Question

Hello, I have searched online for a very specific scenario regarding capital gains. We are selling our secondary home ( rental), and once it is sold, we are transferring the mortgage of $217k to a new property that will be a family cottage. Our financial advisor is saying that by transferring the mortgage while adding another $300k we will avoid the cap gains of we pay 20% down for the new property. Is this correct. Your advice would be greatly appreciated.
Kindest Regards,
Submitted: 1 year ago.
Category: Capital Gains and Losses
Expert:  MyVirtualCPA replied 1 year ago.

Thank you for your question. The only way to defer capital gains tax is to do a 1031 exchange, which is impossible if you are trading a rental property for a personal use property. You will have to pay tax on your gain -- which is defined as the amount that you receive above and beyond what you originally paid, plus improvements, less depreciation and less selling costs. You cannot deduct the mortgage balance that was paid off.

So, if your advisor is insisting you can avoid and defer taxes on this transaction, and you are not doing a 1031 exchange --- get a new advisor.

Further, 1031 is not available as your replacement property will be personal use.

Please let me know if you need anything additional. If not, please rate positive.