Capital Gains Tax on Fourplex which is my Primary Residence

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Capital Gains Tax on Fourplex which is my Primary Residence

Roston Elwell
Bryan, TX · Member since 2017 · 21 posts · 10 votes

I am thinking about buying a fourplex with partners in an LLC and living in one of the units as my primary residence. When we go to sell it will I have to pay capital gains tax. I have herd conflicting stories.

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  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    7y

    @Roston Elwell I'll leave it to our TX CPA brethren to confirm but I fear you will. In order to qualify for sec 121 primary residence you must live in a property that you own. But the LLC will own the property. You will own membership interest in the LLC. The IRS perceives the LLC as the tax payer for the property.

    Now if you and the LLC purchased the property as tenants in common (LLC 75% and you as 25%) then you would be living in a piece of real estate that you own and when it sold you could indeed take the portion that you owned and lived in tax free once you could establish that you had lived in the property fro 2 out of the previous 5 years prior to sale.

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    7y

    @Roston Elwell

    Section 121 is the code section that allows you to exclude $250,000/$500,000 of the capital gain on the sale of a personal residence depending on if your filing status.

    Section 121 requires you to live and own the residence to take advantage of the exclusion.

    You will satisfy the requirement of living in the house. However, you will have failed owning the residence.

    Have you considered the LLC owning the quad-plex and you renting/owning aunit elsewhere?

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  • Roston Elwell
    OP
    Bryan, TX · Member since 2017 · 21 posts · 10 votes
    7y

    Thanks for the input. Maybe I will try the tenants in common.

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