Is this a good idea???

**parallon** · 08-22-2007, 01:48 PM

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

**jaschoenly** · 08-22-2007, 08:39 PM

I think that it would work, you would just need to consider the fees that would be incurred to open that HELOC, I believe that I have heard of others using that strategy as well. Obviously you banker has ulterior motives, but it could still be to your benefit.

Best Wishes,

Josh Schoenly

**parallon** · 08-23-2007, 07:27 AM

Actually, I was thinking about it last night, and aren't capital gains just the difference between purchase price and sales price? I may owe a lot more on the house with a HELOC, but it doesn't change the fact that I still only paid a certain price for the house in the first place. In that case I don't see how it would help. Any thoughts?

Thanks,

Mike

**InRealEstateSolutions.com** · 08-23-2007, 09:44 PM

Those were my thoughts exactly. What does the HELOC have to do with the basis price of the property? Whether you borrow 10% or 100% to finance the purchase, it doesn't affect the capital gains (except for closing costs which you can write off) You can write off interest in the HELOC ***if*** the money you took out actually went towards the home. But taking out $10k to buy yourself an HD plasma TV won't help your taxes one bit!

**jaschoenly** · 08-24-2007, 06:27 AM

Great points and I guess it points back to a mortgage broker who doesn't know the law or just wants his commission. Too many people out there like that unfortunately.