We sold the garage space for our condo which is our principal residence for over 20 years. Does this qualify for the home sale exclusion from capital gains tax?

[Anonymous]

and i disagree with TaxGuyBill

Reg 1.121-4(e)(1)

(e)Sales or exchanges of partial interests -

(1)Partial interests other than remainder interests -

(i)In general. Except as provided in paragraph (e)(2) of this section (relating to sales or exchanges of remainder interests), a taxpayer may apply the section 121 exclusion to gain from the sale or exchange of an interest in the taxpayer's principal residence that is less than the taxpayer's entire interest if the interest sold or exchanged includes an interest in the dwelling unit. 

 i don't think a garage is a dwelling unit.  

[Hal_Al]

I think we agree; it hinges on what constitutes "dwelling unit". I assumed the garage was not attached to the condo.  Typically, it's a  row of garages, in a separate structure.

[TaxGuyBill]

Except for §1.121-1(e) [business use of the property], §121 uses the same rules and definition as §280A(f).  For §280A(f), a Dwelling Unit includes "all structures or other property appurtenant to such dwelling unit", such as a garage.

Otherwise, any detached garage for any sale (including the combined sale with the house) would be subject to tax.

[Hal_Al]

Another issue may be: if the garage was  purchased separately from the condo.

[pwlewis]

The garage was acquired as part of the condo purchase from the prior owner.

[Hal_Al]

Is the garage detached from the condo?  Was there a separate deed for the garage at the time of your purchase?

[pwlewis]

The garage is detached but it was part of the deed that referred to the condo unit and parking space in the development.

[Hal_Al]

You are probably safe to exclude the gain.

[Hal_Al]

No.

But if you end up selling the condo within 2 years of selling the garage, you my retroactively claim the exclusion (by filing an amended return for the year of the garage sale).  Your total exclusion for the two properties is limited to $500K (married).

[TaxGuyBill]

I disagree.  This is not the sale of vacant land.  To me, this is a sale of a "partial interest" in the dwelling unit, which DOES qualify for the exclusion (limited to a total of $500,000 for this and any future partial interest sales for this dwelling unit).