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How Does Tax Law Affect The Duplex I live In?
Many people own duplexes where they live in one side and rent the other, or may live in a house, which has a garage apartment which is used for rental.. Just remember this, the $250,000 to $500,000 home sale tax exemption only applies to the profit on the sale of your personal residential unit. It does not apply to the rental portion of your duplex or garage apartment. You must separate these.
The rental portion of your property will be taxable as a capital gain if you realize a profit. The only way to avoid tax on the rental portion is to make a tax-deferred exchange. This allows you to sell and have the proceeds from the rental units sales held by a third-party intermediary beyond your constructive receipt.
You would then have 45 days to designate the replacement rental property and 180 days to complete the acquisition. Make sure you consult your CPA or financial planner before you sign or plan to sell if part of the property contains rental units.
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