Rental for 40K cash, refi w/i 3 months for 10K more. Sold for 45K, still owed 42K on loan. Is 50K my basis or can I add the refi cost to the org basis of 40K?

[irbyjl]

Due to the refi, I owed more than I originally purchased the house for. How do I account for that? Thanks

[MichaelL1 · Accepted solution]

Your basis on the rental has nothing to do with what you owe on the property.

Your cost basis is:

what was paid for the rental,

plus closing costs,

plus capitalized improvements made while owned.

The only time the balance owed comes into play is how much money you get when you sell the property.