Rental income from a duplex is taxed as regular income. You pay according to your ordinary state and federal income tax rate. The Internal Revenue Service, however, doesn’t tax your gross rental income. They tax the profit that is left over after you subtract your expenses.

How do you depreciate owner occupied duplex?

Depreciation. The IRS lets you depreciate your duplex building, as well. To depreciate it, have your CPA help you allocate the property’s value between the building and the land. Once you determine the value of the building alone, divide it by 27.5, which is what the IRS considers the building’s life to be.

Do you pay capital gains on owner-occupied?

You don’t pay tax on any capital gain, and you can’t use any capital loss to reduce your assessable income. Alternatively, you may be entitled to a partial exemption.

Can I deduct mortgage interest on a duplex?

About deductions Duplex owners who rent out one unit are allowed to take the same deductions as with single-family residences. “Hence, you are still allowed to deduct half of your mortgage interest, half of your property taxes, and half of your mortgage insurance premiums in an owner-occupied duplex,” Reischer says.

What are the tax benefits of selling an owner occupied duplex?

When you sell an owner-occupied duplex, you can come out ahead of selling a rental-only duplex. Rental properties are subject to capital gains tax and depreciation recapture tax when they get sold. When you sell your house, though, you get to exclude up to $500,000 of the gain from capital gains tax and don’t have any depreciation to pay back.

Do you pay capital gains tax when you sell a duplex?

When you multiply this against every shared expense between the two units, it can add up quickly. When you sell an owner-occupied duplex, you can come out ahead of selling a rental-only duplex. Rental properties are subject to capital gains tax and depreciation recapture tax when they get sold.

How are taxes calculated when selling a duplex in California?

To calculate this, add the depreciation you claimed and multiply it by 25 percent for your federal tax and by your California state income tax rate for state tax. If you sell at a loss, you pay federal and state recapture tax on the difference between your selling price and your depreciated cost basis.

Can a duplex be sold as a rental?

The point is that only part of the unit qualifies as the sale of your residence and the other part is the considered the sale of a rental property. The part of the sale that is your residence would qualify for the up to $250,000 gain exclusion since you have lived in and owned that part for more than two years.