sale of duplex

[abby]

I have a client that bought a duplex and the second half was occupied by one of their mothers.

They are looking to sell it now, and have asked me for some assurance on the sale of home exclusion.

There was no business use of the duplex, and I'm quite sure - from our conversations over the years - that they spent a good deal of time tending the mother.

I'm just not sure if I can stretch the use rule to cover the exclusion on the second half of the property. The closest thing it seems to be would be a second home.

I'd like some opionions on whether they qualify for the full exclusion or only half on this sale.

[Gretel]

Stretch

Since they live so close to their mother it can be assumed they didn't spend the nights in the half of duplex owned by mother. Occupying a residence naturally means spending nights there. So I really think this would be a big stretch.

[Bees Knees]

If the mother wasn’t renting the other half from them, you could be looking at a dependency issue. I’d say you could count both halves as your principal residence if the mother made under the gross income test to qualify as a dependent. Otherwise, it’s a second home that does not qualify for the exclusion.

[abby]

abby

They did, in fact, claim her as a dependent and she did not pay rent.

The general opinion here is that a case can be made that it was actually one home - not really that different than if the house had a third floor with a kitchenette - but to let the client know that the IRS could challenge it claiming it was actually a second home.

The fact that a parent doesn't have to live with you to be a dependent weakens the case a bit.

Thanks very much for your input.

[taxladyea]

Abby

Go Abby, my thoughts exactly.