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by travis bacon on October 25th, 2005

travis bacon

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What will be the capital gains tax on the sale of a duplex if I lived in half of it 2 out of the past 5 years while renting the other side, and then buy another duplex of lesser of greater value?

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  • by chrystal rauschkolb on December 28th, 2005

    chrystal rauschkolb

    Potentially, you could have zero capital gains. There are several things to consider. Your "2 in 5" exclusion on the duplex that you sell would only count for the side that you lived in. The other side would be subject to capital gains at 15% at the federal level, UNLESS, you opt to do whats called a 1031 exchange to "defer" the gain from that unit where you purchase a "replacement" property within 180 days of the sale. In your case, if you purchase another duplex with that money, as long as the value of the "rented" replacement unit is equal to or greater than the unit you sold, generally you would have no capital gains impact. A smarter thing to do would be to live in your 1st duplex for 4 years before selling it, occupying the units for 2 years each side, then sell it, and exclude 100% of the gain (up to the max $$ limits) for the whole thing. There are alot of nuances to this, but in general it is pretty simple. You should consult a tax accountant for planning strategies in your case.

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