Capital Gains on Live-In Duplex

1 Reply

Hey everyone,

So I can't seem to get a straight answer on this, so I hope knowledge here will help to answer this question. I owned a Duplex from May 2015 until December 2017. I moved in on July 15, 2015, for a total of 2 years and 5 months of residence. I was always under the impression that an individual filing single is exempt  from any capital gains up to $250,000 on their profit if they have lived in the property for 2 of the last 5 years (last 10 if military). However, I had to file an amendment for my 2016 taxes, and while doing so, the representative (at H&R Block) told me that since i rented out even part of my property, I do not qualify for this exemption. At best, I would be exempt based on the percentage that was my personal use. For example, in a 1,000 sq. ft across 2 units (2,000 total), if I used 200 sq. ft. of it for myself, and the rest was rented out, then i can exempt 10% of the capital gains on the profit. Can anyone here verify if this is true?

Originally posted by @Zachary Cuneo :

Hey everyone,

So I can't seem to get a straight answer on this, so I hope knowledge here will help to answer this question. I owned a Duplex from May 2015 until December 2017. I moved in on July 15, 2015, for a total of 2 years and 5 months of residence. I was always under the impression that an individual filing single is exempt  from any capital gains up to $250,000 on their profit if they have lived in the property for 2 of the last 5 years (last 10 if military). However, I had to file an amendment for my 2016 taxes, and while doing so, the representative (at H&R Block) told me that since i rented out even part of my property, I do not qualify for this exemption. At best, I would be exempt based on the percentage that was my personal use. For example, in a 1,000 sq. ft across 2 units (2,000 total), if I used 200 sq. ft. of it for myself, and the rest was rented out, then i can exempt 10% of the capital gains on the profit. Can anyone here verify if this is true?

 Zachary,

Your primary residence will qualify for $250k ( $500k if Married) gain exclusion if all following requirements are met:

  • You owned a home and used it as your main home during at least 2 of the last 5 years before the date of the sale.

The gain exclusion is unavailable for any gain allocable to a portion of the property sold or exchanged with respect to which a taxpayer does not satisfy the use requirement.

For example, if a portion of the property (separate from your dwelling unit) was used for nonresidential purposes, only the gain allocable to the residential portion is excludable under sec 121.

So allocation of the exclusion based on the sq footage is reasonable or any other method that is reasonable. Or Usually, the depreciation percentage (%) that was used to depreciated the rental portion can be used to determine the business portion of the gain.

For the rented portion,

Since your depreciation was under straight Line, there is no ordinary depreciation recapture, but you have a part of the gain from your rented portion that taxed at 25% on something called " Unrecaptured section 1250" gain".

Remaining portion of the gain is taxed at capital gain rate plus 3.8% NIIT ( if your Modified Adjusted Gross Income) is greater than 200k (S), 250k (M)

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