Hi, I'm trying to figure out the tax basis for a rental property I'm selling. Let's say I bought the property for $500 with $400 mortgage and $100 equity. For simplicity, let's say that the loan is now down to $100 because I prepaid $300 and the net proceeds, if the sale price is $600, are $600-100=500. Had I not prepaid the mortgage, the net proceeds would be $600-400=200. So the question is, how do I factor the $300 I prepaid in the tax basis and does it make sense I take out a loan of $300 just before selling the property to recover the principal prepaid?
