HELOC used for investment

[BHTMG]

I purchased a rental property with a HELOC ten years ago. I am thinking of selling. Has anyone sold a rental with a HELOC? what happens at settlement? can I use the account number of the HELOC to pay off balance, or do I get a check for whole profit and have to pay capital gains on that amount?

[Mike9241]

why niot ask the lender? 

[BHTMG]

Because the last time I called, I got a sales pitch about a cash out refinance and that’s not what I am interested in. I am wondering if anyone else has been in this situation.

[rjs]

Paying off the loan has nothing to do with how much profit you have to pay tax on. You pay tax on the "whole profit," whether or not you use part of it to pay off the loan. Paying off the loan does not reduce the amount of profit that you have to pay tax on. Your taxable profit is the total profit on the sale, not the amount of cash that you receive at settlement.

[BHTMG]

Yes, I understand this. I guess I thought I needed an actual mortgage but your correct, it doesn’t matter. I was also considering a 1031 exchange. I need to research that as well.

[NCperson]

@BHTMG when you get to the closing table, you will be required to pay off the entire HELOC. it will be deducted from the proceeds you are entitled to.  As stated by others, it has nothing to do with calculating the capital gains.

Capitgal gains measures the increased value of the Asset; HELOC is a libability / debt, so it is not included.