Capital Gain Taxes on multi-owned property, one owner is a primary resident the other isn't

[axphoude]

Hi,

I have a follow up question to this topic.  I hope this is the best place for it.   

I have a situation where I have a property that I own with my Wife and Farther in Law.   All three of us are on the deed and have an equal stake in the property (right of survivorship).      This is a multi-family home and in the early years we all lived in the house for a couple of years.   We moved out over 8-9 years ago and have been renting our half of the property.  My farther in law still lives there and that is his primary residence.   

So for my question in terms of taxes.   If we go to sell the house, will the $250K capital gain exclusion only apply to my farther in law?     For example:

We purchased the house for $330K, with $10K or so in closing cost, etc.. so our Cost basis is about $340K.   We believe we could sell the house for around $600K, therefore claiming a profit of $260K.   My thoughts were that we split the project 2 ways and the cost basis is also split two ways.   Therefore 340/2 = $170K for each household.   Then the profit is split in half $260/2 = $130K - sale expenses.    So in this scenario you see the profit is less than the cost basis.  Therefore do either parties pay any capital gain taxes?

Thanks,

-Andrew

[ColeenD3]

The only person in this scenario who can exclude gain is your father in law. See qualifications for the exclusion below.

In the even of the the sale, if the home you sold had multiple owners, your gain or loss is the gain or loss on the entire sale multiplied by your percentage of ownership.  Pub 523

How your sale qualifies.   Your sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if all of the following requirements are met.

• You owned the home and used it as your main home during at least 2 of the last 5 years before the date of sale.
• You didn’t acquire the home through a like-kind exchange (also known as a 1031 exchange), during the past 5 years.
• You didn’t claim any exclusion for the sale of a home that occurred during a 2-year period ending on the date of the sale of the home, the gain from which you now want to exclude