Reporting sale of Duplex

[Will Dee]

I purchased a duplex Jan 2015 to live in and update. In October 2017 I sold the duplex. I ended up putting close to 40,000 in updates and repairs. I did not report the sale of the duplex on my taxes because I didn’t receive a 1099s and I believed because I lived in the house for greater than 2 years I’d be exempt from gains. I received a CP2501 stating I needed to report the sale of real estate. I am now not sure how to reply to this notice... do I write/ type up letter and mail it in with my response to the CP2501 then amend my tax return. Any advise is greatly appreciated.

[Natalie Kolodij]

Originally posted by @Will Dee:

@Natalie Kolodij

After the renovations I did rent out one side of the duplex on Airbnb. The notice seems vague on what I need to send in other that I agree or don’t agree. It says proof of your cost adjusted basis in the property and a statement of how I used the property and refer to Publication 523. By asking for a statement am I to write a letter saying it was my residence? Or that isn’t going to help?

It wasn't 100% your residence. 

It was 50% your residence, and 50%  a business asset that should have been reported each year, depreciated, and made 50% of your gain taxable on sale. 

(This is assuming both halves of the duplex are the same square footage)

Your basis in the property is going to be purchase price and renovations- but it's also going to be split up. 

The basis  in your primary residence half- and the basis of your rental half. 

I would strongly encourage finding a professional to get this taken care of for you- If you weren't aware of how to report it correctly to the IRS before, there's a good chance it wouldn't be correct if responded/ reported to them now as well.