How To Sell Your Minneapolis Duplex Tax Free

A long-time Minneapolis duplex owner recently shared she was trying to come up with an exit strategy that would help her alleviate capital gains tax and depreciation recapture.

As an owner-occupant, the good news was because half of the property was owner-occupied, she be able to realize the $250,000 capital gains exemption for her half of the property.

However, she would still be taxed on the sale of the other unit. This, coupled with depreciation recapture, would chew up a substantial part of her equity.  To her, that meant she would eventually have to move to the lower unit of her up/down duplex for easier accessibility.

There was another catch. There comes a time in many of our lives where, even though we’re good at being housing providers, we just don’t want to do it anymore.

Yes, there are property managers. With that comes the nagging suspicion there are still going to be challenges to deal with, whether that’s maintenance or tenants. And if you’re at the point in life where you’d simply like to be retired from everything even vaguely resembling work, that’s a non-starter.

And yes, there’s always a 1031 exchange. Sometimes the thought of owning property of any kind is simply a non-starter.

There is another way, however. For this particular housing provider, moving to the lower unit may have seemed like a punishment rather than the solution it actually is.  That’s because if you’ve lived in a unit in the building any 2 of the last 5 years as your primary residence, it is considered homesteaded.

That meant when she knows she wants to sell in the next few years, if she moves downstairs and lives there at least 2 but no more than 3 years, both units are qualified for the homestead exemption.

Better yet, those two years don’t have to be consecutive. So, if she wanted to do an extended or short-term rental of her unit while she went south for the winter, she would still qualify for the exemption.

While I am not a tax advisor, and I recommended she should consult hers, that would exempt her from depreciation recapture and most if not all of her capital gains tax.

These same rules would also be true had she never lived there and moved in, staying the required amount of time in each unit.

Moving in to a rental property may not be something