Saving On Capital Gains Taxes
I have a duplex that I am selling for $525K. I owe $124K on a 1st TD. Since 1/2 of it is my primary residence, I plan on an installment sale (AITD). for 2 years. interest only. In the year the principal will be due, do I have to pay ****Must Reach Freshman Investor status before posting URL's***ains taxes on half of it? I have decided against a 1031 Xchange, as I am moving to an area where I don't know the market yet. Any ideas?
You are selling a duplex for $525K. Half of the sale price is allocated to your residence unit, and the balance of $262.5K is allocated to your rental unit.
Assuming that you have met the 2 year rules and qualify for the capital gains exclusion on your primary residence, then your profit from the sale of your residence unit will be tax free whether you receive your profit at the time of sale, or in installments, the profit is tax free.
For the rental unit, depreciation recapture tax is payable in full for the year of sale even though an installment sale will defer capital gains taxes until your profit from appreciation is received.
Additionally the two year rule is quite flexible and can be one year if it falls into the IRS list of exceptions.