Original MDTAXES Forum

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Dec 17, 2003 - 7:04AM

cashing out on primary residence and converting it to a rental

My grandmother's primary house is free and clear and she wants to mortgage it to purchase a condo. She intends to live in the condo and use her now current residence as a rental. Will she have to pay taxes on the cash out since it will not be her primary?? Or will she not have to since she is re-investing the funds in the condo which is to be her new primary residence??

I would appreciate a fast response as she is on the 1st day of her ROR period.

Thanks in advance.

Zip Code: pm99@comcast.net

Andrew Schwartz CPA

Dec 18, 2003 - 6:02PM

Re: cashing out on primary residence and converting it to a rental

Taking a mortgage out on a property that is fully paid off is not a taxable event.

If she were to sell her property, and use the proceeds to purchase a new property, then she might get hit with a tax bill. However, if she were selling her principal residence, and the gain realized was less than $250,000 ($500,000 if she is married), then she wouldn't be taxed, subject to certain other conditions.

Zip Code: cpa@mdtaxes.com