"Hugh" <yuhyma[at]yahoo.com> wrote:

- quote -


Your situation is more complex than that. First, you have
to divide the building into three units, one is a residence,
the other two are rental units. The basic outline looks
like this:

Total Rental 1 Rental 2 Home Yours
Home Brother
Sale Price - $750K - 250K 250K 125K
125K
Cost -250K -83K -83K -42K
-42K
Dep'n 60K 30K 30K 0
0
Gain 560K 197K 197K 83K
83K

Of the gain on the rental units, the deprecation gets
recaptured and you pay tax at 25%, the gain from
appreciation is taxes at long term capital gain rates - no
more than 15%.

Of the gain on YOUR home portion, you get to pay tax at long
term rates, no more than 15%.

Of the gain on your brother's portion, he would get to apply
the exclusion - assuming he meets the ownership tests.

Exactly how it gets reported will be determined by how the
properties were held, personally, or via a partnership,
corporation or LLC.

I would recommend you get professional help to make sure this is done right.

Good luck,
Gene E. Utterback, EA

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I was hoping if some of you tax gurus out there can help me
on how to report the sale of a property to minimize capital
gain tax.

I purchased a three-flat building in 1991 for $250K. My
brother and I lived it in one of the units and rented out
the other two. I moved out at the end of 1993 after
marriage. My brother continued to live there until the
present day.

At the time of the purchase, my brother was still a minor
(16) and thus was not on the building's title. In 1995, I
filed for Quit Claim Deed to add him to the title.

This month, we put the building on the market with the
asking price of $800K. The building was appraised at $750K.
The neighborhood is up-and-coming and we should be able to
get at least $750K.

If we were to get $750K for the building, we might have a
capital gain of $560K:

Sale price 750,000
Basis (250,000)
Depreciation of rental units 60,000
-------
Capital gain 560,000

Here are my questions:

Q1. Can my brother report the gain on his return since he is
in a lower tax bracket?

Q2. Can he claim the full $250K exemption on his return? I
will not be qualified for the $250K exemption because I do
not meet the use test (my primary residence for the last
five years was elsewhere).

Q3. Since we have rental income, will this property be
treated as investment and thus no exemption is to be taken?

TIA
Hugh

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