Using mortgage on principal residence to buy investment property

 Dear Mr. Hickox: I purchased a one acre parcel of raw land two years ago for  $72K.  I bought this land using the equity from my primary residence so I  now own the land free & clear but it increased my mortgage by $75K  (including $3K for closing costs).  I bought the land with the intent of  building a home on it eventually.  However my wife & I no longer wish to  do this.  If I were to sell the land for $125 & put all of that into my  current mortgage would I still need to pay capital gains taxes on the  profit of that sale??  In other words, does it make a difference to the  IRS that I used my primary residence to get the raw land in the first  place?  Or, must I continue to buy other investment type property & never  be able to put that money back into my mortgage? Thank You

Dear B:  Your only option for not paying taxes on this sale is through a 1031x.  In order to pay no taxes you must trade equal or up in VALUE.  If you really want to pay down the mortgage on your home (NOT a good idea in my opinion)  you will have to pay tax on the gain ($125K-$75K= $50K gain).  This would be taxed at 15% federal and 5% State of Colorado.  Total estimated tax without a 1031x= $10K.  I hope you will choose us for your 1031x services. 

Steve Hickox
Attorney / President

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