Selling Primary Residence
I have a customer who is selling the house his primary residence of 15 years. He is likely to have a capital gain of about 700k. He is really trying hard to avoid the capital gains (in excess of 500k since he is married).
Does anyone have any ideas of how he can avoid the taxes on the additiional 200k. If he were to claim rental income on say 1 room (which he actually is doing), could he qualify as both an investment and a primary residence.
He can certainly split the transaction between his primary residence (Section 121 Exclusion) and his rental portion (Section 1031 Exchange) based on square footage (or some other defensable method) and see how that affects his over all capital gain allocation.
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Does it matter what his intended use was when he purchased it. Or how long he used it as a rental.
The rental portion should be held as rental property for at least 12 months in order to be safe. It does matter what his intent was when he purchased the property, but it also matters what his intent is at sale. His intent is clearly primary residence for most of the property and rental/investment for a small percentage of the property, so he should be fine.
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