Househack capital gains

[John Bohannan]

My wife and I have househacked our basement on-and-off for more than half of the five years we’ve lived at our home. Now it’s time to move.

We may keep it as a rental. Or we may sell. The complications of capital gains may get icky because it’s up 120K and we’ve declared a loss some years. We’re sorting out whether it’d be better to refi.

Question:

If we keep it as a rental for a few years, does that change the capital gains situation or allow a 1031 exchange?

[Natalie Kolodij]

I would strongly suggest setting up a consultation with a tax pro who specializes in REI.

Is your basement a separate unit or did they share your main living spaces of the house? Kitchen/ Bath ect? 

The way the gain and section 121 comes into play is actually different if it's a separate unit vs. space within your primary home. 

If you decided to rent it out you could still sell it and utilize 121 exclsuion for up to 3 years after you move (On whatever portion is applicable today- would remain applicable for 3 years) 

On any portions that are not eligible for 121 you can utilize a 1031. You can actually combine 1031 and 121 to maximize.