Taxation Of Condo Conversion

I am trying to convert a duplex into 2 separate condos. The goal is to sell the top unit this year, and rent out the downstairs unit for at least 5 years before selling.



I would like the sales to qualify for capital gains treatment. Is there any way to accomplish this?



If the only answer is to transfer the property to a conversion entity (so that I have the capital gain and the conversion entity does the condo conversion and pays ordinary income tax), would I have to refinance the mortgage which is currently secured by the entire house?

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