Selling duplex that was formerly my primary residence: does capital loss carryover apply?

We own a duplex in WA state. We purchased in 2006, totally renovated both units, lived in 1 as our primary residence and rented out the other. We relocated out of state in 2010 and now rent out both units.  My question is about tax implications of selling.

We have a potential buyer for the duplex, but would be selling at a loss and need to know if the capital loss carryover on our tax returns would apply to both units or not. I know it would apply for the rental unit but I'm not sure how the unit we lived in would be classified. 

From an IRS perspective, is the unit we lived in considered a primary residence under the 2 of the last 5 years capital gains exclusion? Or did it become an investment property as soon as we moved out?  If it will be considered a primary residence, should we hold on to the property and postpone selling it until the 2 of 5 rule has expired for us?  If we are selling at a loss, we want to be able to claim the capital loss carryover for both units.

Thanks for any guidance.


  • June 24 2012 - US
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Answers (1)

If I am reading your scenario correctly, you may not be able to claim the loss unless you purchased another residence that you claim as your primary residence. You may want to wait the 3 years, as the market may pick up and you could sell at a profit or to break even instead or at least claim the loss then. But I recommend you contact an experienced accountant to decide your best course of action.
  • November 12 2012
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