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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 2939
Experience:  IRS licensed Enrolled Agent and tax instructor
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My husband and I are going to sell our primary residence

Customer Question

My husband and I are going to sell our primary residence located in Oklahoma and plan to downsize and/or turn the profits from the sale into more than one residence via 1031 exchange. We would be left with around $1million +/- in capital gains. The home is currently paid off, but needs some repairs and improvements done prior to being put on the market (I am a realtor and would guess somewhere in the ballpark of $50K, but it could be more). We were planning to pay for those improvements out of pocket, but we are curious if taking out a home equity loan to complete them, that would be paid off at closing, would help reduce the amount of taxable capital gains after selling? Thanks in advance for your help!
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

First, you cannot use 1031 when you sell personal property. 1031 is only available for business properties.

If you used the place as your primary residence for more than 2 years in the last five years, you could qualify for 500K capital gain exclusion. To figure out your capital gains you will take the purchase price, cost of capital improvements and expenses of sale (including RE commission if you pay somebody to sell it for you) and deduct it from the selling price. Home equity loan, mortgage or other loans are irrelevant for the calculation of the capital gains.

Expert:  emc011075 replied 1 year ago.

Danielle, I see you read my respond. Do you have any questions? Is there anything else I can help you with today?

And if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.