Does a cash out refinance get taxed as ordinary income? And how does the tax, if any, get calculated?

Question

correction: Does the cash RECIEVED from a cash out refinance get taxed in any way? and if so, how and through what method?

Answer 1

Cash out on a refinance is not taxable income.

Caution - On the subsequent sale, some taxpayers mistakenly believe that since they receive little cash from the sale (since the sales proceeds pay off the higher mortgage) that they have little gain. For instance, say you buy a property for $100 with an initial mortgage of $80. When the property appreciates to $150, you refinance with a mortgage of $130. Then you sell the property for $150. Your gain is the sales price of $150 less your cost of $100 - your gain is $50, your cash from the sale is only $20 (the $150 sales price less the $130 mortgage paid off amount).

Of course, a principal residence lived in for any 24 months in a five year period, has a gain exclusion of $250k for an individual ($500k for a married couple).

Answer 2

A loan is not income. You weren't taxes on the amount of the loan when you bought the house were you? The same applies to refinancing. Cash out doesn't matter.

Answer 3

The proceeds from a loan are not taxable. I fact they are frequently a rather clever way to get money out of your home without paying taxes. You will be repaying the loan with interest which is very likely a deduction (the interest part).

Answer 4

No, that is simply funds advanced as part of a loan that needs to be repaid. There are no tax implications for those funds at all. Its no different from charging a pair of shoes on your credit card,

Answer 5

No because its a loan. You still owe the money.

Answer 6

No

Answer 7

No