I bought a duplex in 1992 for $125,000. I have lived in it until this year and have been taking depreciation on it each year. I owe $70,000 on the first mortgage and recently borrowed $130,000 from the equity to buy a new single home. The duplex is worth around $250,000.
Why do I say half of a duplex?
I say half of the unit because I assume both halves of the duplex are equal, it would have been appropriate to use some other percentage if the two units were not equal in value. The point is that only part of the unit qualifies as the sale of your residence and the other part is the considered the sale of a rental property.
How to split the rental cost of a duplex?
If you do this, you may allocate the shared expenses (like mortgage interest and property taxes) however you wish. If the units are identical, split the shared costs in half. Then report the entire rental portion on Schedule E (rental use = 100% for this unit).
Do you have to depreciate a duplex to get a gain?
The amount of cash you receive does not change your gain. I assume you have been depreciating half of the cost of the property for the rental portion of the duplex; the other half should have not been depreciated, as it was your residence.
Can you rent out one side of a duplex?
If you rent out both sides of it, it’s an investment property. But if you live in one side and rent out the other, it’s essentially two different properties when it comes to paying taxes on the sale. In other words, you would treat half of the duplex as a residential property and the other half as a rental.
When do you have to pay taxes on a duplex?
Your first $250,000 of gain, or $500,000 if you are married and file a joint return, is excluded from taxes if you lived in the duplex for at least two of the five years prior to the sale.
What are the pros and cons of owning a duplex?
It is located in one of the “older” parts of town, is surrounded by lovely historic houses, and is considered to be a very “family friendly” neighborhood. If we have any two of the three units rented out, it pays for our mortgage.
