Capital Gains Strategy Question

3 Replies

I purchased my personal residence about 12.5 months ago with personal non-business funds. I want to sell my house and use the proceeds to purchase a Duplex which I can use to House Hack. Will I be subject to the long-term capital gains rules, or since I plan to live in 1/2 of the duplex with it qualify as a rollover of equity? Any tax strategies suggestions are appreciated.

I am sure I'm not the first to do this, but couldn't find a doc talking about a person selling their home under the current tax laws to live in 1/2 a duplex and rent the other.


Thanks!

@Bill Johnson , it is the use and disposition of the property you are selling that determine your gain and taxability. The property you are selling is your primary residence. So it does not qualify for a 1031 exchange. And you have not lived in it for 2 years out of the 5 year period prior to sale. So you do not qualify for that exemption. There are a few prorated exceptions depending on job related or medical reasons that may apply. But apart from that you will incur tax on the sale of your property. It does not matter how you will be using the replacement property in this instance.

Next time you're ready to sell you can do a 1031 exchange on the half you don't live in.  And if you've lived in the other half for two years you'll get that tax free up to the limits of sec 121.

@Bill Johnson

It sounds like you have been living in this residence you intend to sell, right? 12.5 years... it’s your primary residence and never rented, correct? Then you easily pass the 2 out of 5 year rule and eligible for the sec121 exclusion where $250k single / $500k married amount of the capital gain on your property is excluded from income tax.

As for the duplex, I believe that will make your tax return more interesting. The applicable expenses for the duplex (eg half the real estate tax) would be deductible for the rental. The other half would be personal expenses.

When you go to sell it, there have been some other threads on bp that covered it. I think if you only rented out one unit, the tax return is again split between the half you used as a single family and half you used as rental. If you move out first, rent out both units, then sell, I believe it gets really complicated.

So, later on you need to talk to a qualified professional. Otherwise, selling your personal, primary residence is just “normal.”

Good luck