What is the name of your state? California
A coworker of mine is selling his house, and is taking out a substantial loan on the property before he sells it. He claims that he can get away without having to pay tax on the money that he received from the loan. At the time of sale, that loan will be paid off from the proceeds. He claims because of the loan payoff, that effectively lowers the amount of his profit from the sale, and therefore the tax he owes. I don't think this is correct, as he has pulled profit out of the property, prior to the sale, via this loan. My feeling is that this would raise red flag with the IRS. This can't be a legal practice, is it?
A coworker of mine is selling his house, and is taking out a substantial loan on the property before he sells it. He claims that he can get away without having to pay tax on the money that he received from the loan. At the time of sale, that loan will be paid off from the proceeds. He claims because of the loan payoff, that effectively lowers the amount of his profit from the sale, and therefore the tax he owes. I don't think this is correct, as he has pulled profit out of the property, prior to the sale, via this loan. My feeling is that this would raise red flag with the IRS. This can't be a legal practice, is it?