I am unmarried and I own (no mtge) and live in one unit of a 3 family house; Although the house is a legal 3 family (with 3 separate units, meters, utility lines etc), I've "never rented" out the other 2 units; I've always occupied the entire house. I plan to sell and buy a one family house. A potential buyer will pay me $1,000,000.00 for the house;
1. How do I go about determining the basis of my home?
2. Assuming the basis is zero, (The house was built in 1931 by my grandfather and has changed hands a few times over the years; Always transferred to another relative, never as part of a will or estate.) What portion of the sale price will I be obligated to pay Capital Gains tax on and what portion is exempt?
3. Would I qualify for a primary residence exclusion?
1 Answer from Attorneys
You would need to go over the transaction from the beginning of time and examine each expense to repair or maintain the home; how much was paid each time the house changed hands, and figure out the basis, or a reasonably close approximation which you can defend if challenged by the Service.
Or you could skip all the hard work and assume the basis is zero,
So yes whatever the current exclusion amount is for home mortgage take it against the entire parcel, and the rest is capital gain.
Do consider whether a sharp tax and real estate lawyer can shelter the gain under the section 1031 rules even though you're looking to buy a personal property. I've done it before.