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Subject:  selling "partial" rental property ques Date:  3/9/2006  12:40 PM
Author:  CaffeineFiend Number:  84803 of 127746


I'm mostly a lurker on other boards, but I have a somewhat complicated tax question. I am planning to consult with an accountant that I've worked with in the past, but I'm hoping to get some ideas from the many clever people here.

First some background:

In the spring of 2004, I purchased a condo with a friend of mine. We moved into it pretty much immediately. In August 2004, we found roommates and rented out the other three bedrooms to them (and we continued to live there ourselves).

We consulted an accountant at that time, and he told us that the appropriate thing to do was to (starting that August) consider 40% of the property to be "personal use" and 60% to be rental use. So 40% of the expenses were split between our respective schedule As. And 60% of the relevant expenses (including depreciation) were split between our respective schedule Es.

Now, we are looking to sell our place and go our respective ways. By the time we sell, I will definitely have lived in the condo for two years. We do expect to have a capital gain (though the current market analysis we have gives a very broad range for it).

So, this brings me to my questions:

I have been trying to go through the IRS website, but I'm not sure I've understood everything. My understanding thus far is that 40% of any capital gain is my personal primary residence and 60% of it would be on a rental property. Is that essentially the way the IRS views it? Or is it weirder than that?

I have found a single family house that I like and it looks like some of my roommates will be interested in moving there with me and continuing to be paying tenants. Is there any tax benefit to putting money from one rental property into another? I think I read about something similar to this at one point, but I cannot remember what it was called.

Thanks for any help you can offer! And, as I said earlier, I am planning to consult an accountant. I just don't even feel like I know what the possible outcomes even are at this point.

(Oh, also, I know that in principle I should be able to avoid the whole issue by ditching the roommates and just having the owners live there for two years, but for my situation that would be very inconvenient and probably not worth the trouble).
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