Attorney · Jacksonville, FL · Member since 2020 · 6 posts · 0 votes
I'm buying a duplex in Jacksonville Beach, FL that has been legally separated into two separately titled townhouses, which means I'm currently going through two simultaneous purchases with two separate sellers (ugh). Each side is $450K.
My plan is to live in one side and rent out the other for a year before moving into a new primary residence and repeating the process. I can get a 2.75% mortgage rate on the side that's my primary residence and a 3.25% rate on the rental side (a 3% effective rate across both units). My plan is to combine the two sides under one title as a duplex after purchase and then refinance to the 2.75% primary residence rate on the entire duplex, saving .25% over the long term.
However, I also know that a rental property has certain tax benefits that a primary residence doesn't, like the ability to claim depreciation deductions. I've never owned a rental property so there are likely many other considerations.
The question is, does it make sense to combine and refinance, or keep them as separate townhouses?
More analysis: Total value of both properties is $900K, so .25% interest would be $2,500 a year in savings. If my depreciation deductions are worth more than that it seems I should keep them separate, unless there are other considerations?
The value of the two SFH's is typically greater than the same property as a duplex, one parcel.
Also, the depreciation will be exactly the same....if you occupy one and rent the other, you do depreciate the rental portion and retain your section 121 exclusion on the owner occupied portion. Also, you can only depreciate the rental one....no matter if two separate parcels or one duplex.
Wayne is 100% spot on with his answer, which explains why the building of this style of townhome is so common in Jacksonville Beach. It allows a developer to maximize highest and best use from a given parcel. The property is worth substantially more with each townhome being on its own.
Also, the only way to depreciate your side of the duplex would be if you had room mates. You then can divide the sq footage of your unit by the number of room mates. I would run this past your CPA of course.