Selling 1 Unit of a Full Duplex - Tax Implications?

[Aaron Duthie]

Scenario: I have house hacked a Full Duplex for 2 years (lived in unit A, rented out unit B). The Full Duplex has two tax IDs, one for each unit, so I can sell each unit separately. Let's say I now sell the rental unit B.

Questions: 

- Does the $250k/$500k capital gains tax exclusion apply on this rental unit B sale, even though I was living in unit A of the Full Duplex?

- What are the tax implications if I then move out of unit A (my primary residence), start renting out unit A, then sell unit A within the initial 5 years of the original Full Duplex purchase? 

- If I didn't "use up" all of my $250k/$500k capital gains tax exclusion on the unit B sale, is there some sort of carry-forward amount I can apply on this unit A sale's capital gains profit?

[Matt Devincenzo]

- No the 121 exclusion would only apply to the unit you personally resided in. If this were sold as a single duplex you would pro-rate the actual gain per unit and would only apply the 121 exclusion to unit A. Unit B would be eligible for a 1031 if you chose to pursue that route. 

-The purchase date has no bearing on the 121 exclusion. If you move out and sell within 3 years (to keep your 2 out of 5 eligibility) you could apply the 121 exclusion to unit A.

- 121 exclusion isn't 'used up' it is applied to a specific sale and only that sale. If you receive the 121 exclusion on unit A then that is it there is no carry forward or applying to another property because only unit A was your primary. Unit B would separately be eligible for a 1031...this applies no matter whether you sell unit A/B separately or together. The tax treatment is based on your use of the units not how they are sold.