Legal Question in Tax Law in California

Is equity taken from a house in the form of cash taxable??

I am wondering if cash taken out of a house via a home equity loan is taxable. The scenario i was thinking of is this: If one owed $300,000 and was selling their house for $400,000 and owned the house less than 2 years, could they take out the $100,000 in equity prior to the sale of their house and not be taxed. I have talked to a few people who have used equity lines to put in pools, buy a car or boat, or even put that money into the down payment of another house and no one remembers having to pay taxes on that equity. If i was to take the money afterwards, i know i would have to pay taxes on the gain of the $100,000. Also, if i had to pay taxes on the gain of 100,000 dollars, does that $100,000 dollars get added to my ordinary income and therefore taxed again.


Asked on 8/15/04, 1:17 pm

1 Answer from Attorneys
Ken Koenen Koenen & Tokunaga, P.C.

Re: Is equity taken from a house in the form of cash taxable??

It sounds as if you are talking about capital gains tax. Capital gains tax is computed by subtracting from the selling price the original purchase price and the cost of selling. It does not matter what you owe.

If you are talking your primary residence, you can avoid the capital gain tax by staying in the property for 2 years. There are some exceptions, such as if you are moving because of a job change.

Capital gains is taxed at 15% federal and about 8-9% state.

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Answered on 8/15/04, 2:26 pm


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