Carl,
Thank for clarifying how to calculate the cost basis and input into turbo tax, but it doesn't answer the original question.
The problem the original poster and myself have is, we did improvements while the property was an owner occupied duplex, so obviously the owners portion can be exempt from capital gains (up to 250K), but the rental side is not. When we sell the property, we've increased the value of it considerably due to almost all the renovations on the owner occupied unit. So we end up selling the property for a lot more than we paid for it, and on the rental side, we are screwed because it looks like also increased the value of the rental side due to the overall sale price being higher from renovations.
So the question is, how can we divide up the gain in value on the rental side without just taking the 35% of the sale price minus the 5K he did in renovations on the rental and minus 35% of the original cost of the property? This method is not fair, because the property sold at a higher price due to the 45K he put in on the owner's side.
His suggestion of proportioning out the renovation cost over both units seems like the best method, unless someone has a better suggestion.
