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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29941
Experience:  Taxes, Immigration, Labor Relations
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I sold my cabin 2 years ago and used the proceeds to pay off

Customer Question

I sold my cabin 2 years ago and used the proceeds to pay off the mortgage on my home. When I did that I thought everything would be OK then I had to pay IRS $6000.00 in taxes. I thought that using the money from my cabin to pay off my mortgage would not cause me to pay IRS taxes on the money. Thank you, ***** *****
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Unfortunately - that was not correct assumption.

If you realize the gain on the selling of the cabin - that gain is added to your other taxable income REGARDLESS how proceeds are used.

Expert:  Lev replied 1 year ago.

The issue is that was likely a long term gain - taxed at reduced tax rate.

If you did not report that sale transaction on your tax return - the IRS might assume that the TOTAL proceed is taxable and might apply regular tax rates (not reduced long term rates)

Your taxable gain is (selling price) MINUS (adjusted basis - that is your purchase price plus improvements)
Thus - we need to verify (1) if that transaction was reported on your tax return and if not (2) you would need to amend your tax return and add that transaction.

Let me know if you need any further help.