I purchased a 12 unit apartment building in Los Angeles for 1.25M in 2005. Subsequently, I spend 100K in legal expenses, labor and materials to improve the overall income and value of the building. Currently, I am working on a refinance to pull out approximately 300K in equity to complete the renovations. The appraisal came back at 1.8M. I am working on a 70% LTV which would allow me to pull out between 350K and 400K. I plan to finish the rehab, rent the units and turn around and sell the building. My question is this: When I sell the building, am I liable to pay taxes on the equity I pulled out of the building during the refinance? I have not decided whether I will perform a 1031 exchange. How will this affect a 1031?

Pulling EQUITY is not a taxable event; however, you need to have an attorney advise you on how to effect a 1031 STARKER tax-free exchange if you don't want to pay capital gains on the INCREASE in selling price over purchase price and costs of improvements... if you don't EXCHANGE into another "like kind" property, you will owe capital gains on any monies earned.

I find it hard to imagine someone working on transactions like this without a CPA on retainer.