Hello everybody thank you for answering this question pretty well I now have my own sale to ask about.
My father sold a legal to family that was purchased in 1973 good luck to me in finding the exact basis.
I'm pretty familiar with the process but I do have some specific questions
1
The units are not the same size luckily if my father the rental Bill unit is only 35% of the entire house because the first floor is attached to my father's house as a mother daughter and it's not rented.
Only the third floor is a rental and yes it is been reported and depreciated.
The most important question is am I allowed to split this 65-35% because splitting in a half would result in a much bigger tax bill.
2 want to verify that my father is entitled to the full $500,000 exemption on the part of the house that was used to live in for the last 40 years and yes he's married.
3 am I correct that before we split things up we adjust the basis by adding all the things that were not depreciated or claimed as an expense on the rental. Also when determining the profit made we first deduct the commission legal fees and direct expenses incurred selling the house for example we had to hire an architect for $10,000
4 once this is done am I correct that I compute the profit from each portion separately and prorate 65 percent to resident part and 35 to rental.. the residential part would get the $500,000 exemption.
5 am I correct that that only then I would take all of the depreciation that was taken off the rental property and count that as recapture income..yuck!!! But then of course add that to the basis of the 35% commercial part.
6 finally I understand the concept of recapturing the depreciation which includes the portion of the original sale price from 1973 plus roof work or anything that was depreciated but what about expenses that were taken on the rental unit like plumbing fixing? Are those simply ignored?
I realize this is a lot to ask but I appreciate any guidance you can give again I understand the concepts I'm just trying to get these exact details!!
