Selling Duplex cap gain tax strategy

[Kenny Tan]

Hello everyone.
A brief intro. I owned an identical 2x3bd floorplan duplex in Sacramento for 10 years and I have plans to sell for a modest profit when RE market gets better. I hope that would be 4-5 years from now.
To reduce my Cap Gain and other reasons, I have actually moved back to live in one side. Taking advantage of Section 121 Residence exclusion. Plus it is easier to do needed upgrades while I live in it.

My questions is regarding the use of Section 121 for the sale of the duplex. Can I move into the 2nd side after living in the 1st side for 2 years and establish primary resident status for a total of 4 years in the duplex. Then on the fifth year I will sell the duplex to minimize cap gain tax on both sides? (minimum 2 of last 5 years)
Of course depreciation recapture must still be done on both side.
Anyone that has done this please chime in. Thanks.
-Kenny

[Account Closed]

Living in both sides of a duplex would complicate things more. You can take the sec 121 exclusion for the unit you live in full up to the 500K gain because there was no rental activity. The other unit was rented out and is subject to capital gains when the property is sold. Though this may be on one tax parcel there are two living spaces with different tax treatments.

You can only take the sec 121 deduction once every 5 years, so living in both side for 2 years still means one unit can receive the sec 121 exclusion but now it must be reduced by the portion of time it was used for a rental.