Deprec rental to prim res for capgain exemption? - Posted by David Hanson

Posted by Dave T on July 04, 2002 at 23:46:40:

I think Tom overlooked the part of your post that said you were buying a triplex. Because you are depreciating, I assume that you are living in one unit and operating the other two as rentals. Additionally, I assume that you allocated a fair share of your cost basis to each unit, and are only depreciating your rental units’ basis (less land value).

In this instance, when you sell the property, you will have to treat the sale for tax purposes as two transactions. The first will be the sale of the unit you occupied as your primary residence. The second will be the sale of the rental units.

On the sale of your primary residence unit, you may take full advantage of the capital gains exclusion for the portion of the profit on the sale allocated to your unit. Since you are not allowed to depreciate your primary residence, no depreciation recapture would apply.

The sale profit allocated to the other two units are subject to capital gains taxes and depreciation recapture.

Suggest you consult a professional tax advisor for specific details.

Deprec rental to prim res for capgain exemption? - Posted by David Hanson

Posted by David Hanson on June 17, 2002 at 01:05:05:

This must be too good to be true, but I thought here would be the place to confirm it:

Suppose I depreciate the triplex I’m buying over the next 15 years so my tax basis is worth half my purchase price. May I then live in it for two years, sell it, and have the resultant (big) capital gain be completely exempt?

And if so, what’s to stop me from moving from one depreciated rental to another, always staying 2 years before selling and getting the exemption on each one, now that the limit isn’t a lifetime one per the 1997 tax reform act (or have I misunderstood this?)

Thanks, Dave

Nope - Posted by The Baze

Posted by The Baze on June 17, 2002 at 11:19:03:

You can move into a rental property, live there for 2 years, sell, and exclude the capital gains. You cannot, however, avoid the depreciation recapture. You have to pay tax on that.

Example: You purchased a rental house 2 years ago for $50,000. You’ve depreciated it down to $40,000. You move into it & live there for 2 years, then sell it for $70,000. You can exclude the gain to the extent it exceeds $50,000, or in this case, $20,000. But the $10,000 of previous depreciation has to be recaptured and you will pay tax on that at 25%.

Hope this helps.

Tom Bazley, CPA

Re: Nope - Posted by Dave T

Posted by Dave T on July 07, 2002 at 10:42:57:


I think you overlooked the part of the question that referred to a triplex as the subject of the question.

In this instance, the sale of the property is bifurcated for tax reporting purposes.


Thanks much for the reply Tom, just what I needed. - Posted by David Hanson

Posted by David Hanson on June 17, 2002 at 11:45:59:

Thank you Tom! Not only does that make perfect sense, but it’s very helpful to boot.

Cheers, Dave