Tax Advice - Section 121 Exclusion for Duplex Sale

[Jacob McInerney]

Hey folks,

I'm looking into putting a duplex on the market.

Concerning the Section 121 exclusion (https://www.irs.gov/taxtopics/tc701) for the sale:

The property was my primary residence (househack) for 3 out of the last 5 years (the exclusion requires 2 years). Both units have been rented the last 2 years.

Are there any tax code "gotchas" that would prevent me from qualifying for the exclusion?

Really appreciate any and all advice - thanks!

[Dave Foster]

@Jacob McInerney You can still qualify for the 121 exclusion if you meet that two-out-of-five-year requirement for the side you lived in.

However, since you also demonstrated investment use on the other portion of the property, you could qualify for a 1031 exchange, which would allow you to defer the tax on the rest of the property that was held for investment use as well.

Again this amount would be the unit that was rented, but you could receive a bit of cash tax-free and defer whatever leftover tax you might have. No tax at all. Some tax free and some tax deferred. That is a great thing about the small multifamily house hack!!!