Taxes on sale of apartment in our residence?

[Aaron Kneile]

We own a 2-family brownstone in Harlem, NYC. We currently rent the basement apartment and live in the rest. My wife has suggested we sell the basement apartment as condo, using the proceeds (after some reno costs) to lower our monthly mortgage, but I am unsure what the tax implications of this would be. Does the sale of part of your residence count as regular taxable income, or can it be taxed at a lower rate than my regular income?