Taxes on home sale

[Laurie Geissler]

Myself and the other owner have discussed selling the property instead of renting it out. We did live in the 2/2 for a year and a half as a primary residence but bought another home with the plan to rent our the 2/2 and 1/1. I understand that we do not meet the 2 of 5 rule for the 250k tax exemption. However because we have held this property for over a year it is my understanding that we would pay long term capital gains. My question is can the capital improvements be added to the cost basis in order to reduce the long term gain. Am I correct in my thinking? I have been told different things by different CPA's and at this point I'm concerned about my knowledge and the conflicting information. We would rather keep it as two rentals if we are going to owe a lot in capital gains as it wouldn't be worth it. Any input would be appreciated.