Selling property, thinking about putting down lump sum towards mortgage to reduce bank penalty. Payout at closing would be higher. Would this increase my taxes?

[TurboTaxBrenda1]

1- If you are selling a property for which you are going to realize Capital Gains (not your principal residence) if your payout is going to be higher, then you're going to have a larger Capital Gain.

2- The Mortgage Penalty can be included in the Capital Gain calculation as Disposition Fees. 

3- The net sales proceeds are the selling price and the cost is the original purchase price. The original purchase price should be shown on the purchase and sale agreement when you first bought the property. 4-4-Land transfer tax, legal fees paid and other closing costs can be added to the cost of the property for tax purposes. Likewise, commissions and selling expenses can be deducted to arrive at the net sales proceeds.

5-It depends on the individual situation as well. How much of a Capital  Gain are you gonna have? What's your other income like?

6-You might even break even either way!

The question you need to ask, is it more beneficial to take the Mortgage Penalty and have a lower Capital Gain at tax time, or vice versa?