DEAR BOB: Twenty years ago my wife and I bought a two-unit building. We qualified for a bigger mortgage from the rental income and the extra money helped us fix up the building. We lived in one unit and rented the other unit to tenants. Now that our kids are going to college, we want to sell. However, we have been depreciating the rental unit. When we sell, we won't have to pay capital gain tax on the sale of our personal unit, thanks to that $500,000 principal residence sale exemption. But will we owe taxes on the rental-unit sale? Or can we avoid tax by buying another two-unit building? – Ron R. DEAR RON: For income tax purposes, the sale of your two-unit rental property is really two separate sales. Purchase Bob Bruss reports online. The "first sale" is the value of your principal residence unit, which qualifies for the married couple $500,000 tax exemption of Internal Revenue Code 121. That's presuming you owned and lived in it at least 24 of the 60 months before its sale...
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