My wife and I are planning on moving out-of-state later this year and I'm trying to do some tax planning beforehand. We have a duplex--live in one side and rent out the other. When we move, we are considering two options: sell the duplex, or keep the duplex for now, rent out both sides and sell it next year. Using TurboTax, we have been deducting 50% of the duplex on our taxes. If we decide to sell right away, I think the tax implications are pretty straightforward.
But I can't get clear on how we will handle the situation if we keep the duplex, rent out both sides, and sell it next year. Right now moving, renting out both sides, and selling later is our preferred choice.
Do we need to convert our 50% of the duplex from personal to business use? If so, how would we do that in TurboTax?
If we do that, would we still be able to exclude 50% of the capital gain on the sale (since we will have lived in the duplex as our primary residence for at least 24 of the last 60 months)? What if it ends up selling at a loss? Do we exclude 50% of the loss, also? We did some major renovations and I am not certain that we will sell at a gain if we include the cost of those renovations.
Honestly, I'm not sure I am even asking the right questions. I guess I'm trying to figure out if there are tax pitfalls to keeping the duplex, renting out both sides, and then selling next year rather than just selling outright. Does it matter one way or the other tax-wise?
