Capital Gains and Duplexes

February 4, 2006 8:40 AM

If I live in the downstairs flat of a duplex and rent out the upstairs for 3 years and and then move to the upstairs and rent out the downstairs for 2 years, can I take a reduction on the entire property and not have to pay capital gains?
posted by javasal to law & government (6 comments total)

As a lawyer, I can say, that question is for a tax lawyer.
posted by Ironmouth at 9:03 AM on February 4, 2006

Capital gains when? You mean, selling it after the end of five years?

Why, exactly, do you think this will work?
posted by MrZero at 12:27 PM on February 4, 2006

A reduction of what? Unless you mean something different by capital gains than what I understand it to mean, capital gains are only applicible when you sell the property.

So, let's assume you've sold a property which you occupied that also had a portion which you rented out during the time you lived there.

In Canada, it would be capital gains free, per the definition of "principal residence" by the CRA, as capital gains resulting from the sale of a principal residence are not taxed.

If you're not in Canada, I dunno.

Declaring the rental income for tax purposes is a separate issue.
posted by GuyZero at 12:30 PM on February 4, 2006

The wording is kind of confusing, but if you're talking about capital gains, then you're talking about selling the house, right? In the USA, if it's been your primary residence for any 2 out of the most recent 5 years, you pay no taxes whatsoever on the gains. In this case, it sounds to me like you qualify.
posted by knave at 1:23 PM on February 4, 2006

If you're purely asking about selling the property - I defer to others - I haven't sold mine. If you're asking about the owner-occupied status regarding your yearly 1040...

If you're in the states, you can only deduct expenses related to the unit or units that you're leasing.

I own a two-family and while it was owner-occupied, work that was done to the common portion was 50% deductible. Work done to the rental units themselves or infrastructure specific to those units (funace, hot water, etc.) was 100% deductible. Work done to your personal living space...zippo.
posted by organguy at 10:33 PM on February 4, 2006

If you've taken depreciation on ANY part of your house - for example, even a room you use solely as a business office - then when you sell the house, the depreciation is subject to recapture.

Personally, I doubt that moving upstairs makes any difference whatsoever. But this is precisely the kind of question that you want to ask the IRS (try to get the answer in writing, or have them site a specific part of the tax code, brochure, etc.) or a tax lawyer or tax accountant. In the case of the latter, the several hundred dollars it will probably cost you will be money well spent if you discover that moving is in fact pointless.
posted by WestCoaster at 8:27 PM on February 5, 2006