Boy, this one is a nightmare. TP bought a duplex, lived in one-half of it for two years, while renting the other half. Then moved and rented the half he lived in so that 100% was then rental property for 3 years. Sold at a gain after basis is reduced due to depreciation and expenses of sale. Just barely qualifies for exclusion on the 2-out-of-5 year rule for the personal part. Is there an easy way to calculate the two parts? If 50% of the gain is subject to 121 exclusion, and the depreciation taken exceeds this amount, then is the only part reportable the actual gain? And all of it is subject to the 25% maximum rate?
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Last edited by Burke; 02-26-2017, 05:18 PM. -
Treat the sale as the sale of two assets. If the two units weren't identical (and many duplexes are not), allocate the total cost of the two units in proportion to their respective FVMs. The ยง121 exclusion will only apply to the gain on the unit the T/P lived in.
IRS Pub 523 covers all this fairly well ... you might want to start on about pg 10.Roland Slugg
"I do what I can."
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