Author Topic: 50% Rule for a Duplex I live in?  (Read 1495 times)

themush

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50% Rule for a Duplex I live in?
« on: November 18, 2014, 12:35:56 PM »
Just learning about rental properties, and it might be a good match for my wife and I. We’re thinking about buying a house, but at some point we also want a rental property. The idea is to buy a duplex, live in one side, rent the other.

My question is:

How do we do the math on this? Does the 50% rule still apply? Do we analyze the property based on what it would make if both sides are rented? Or is there another metric to use for live-in rental properties?

Thanks!

brooklynguy

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Re: 50% Rule for a Duplex I live in?
« Reply #1 on: November 18, 2014, 01:44:33 PM »
I think it makes sense to analyze the purchase as if you are buying two separate properties, which is how the IRS requires you to treat this situation for tax purposes.  Take a look at the section of IRS Publication 527 starting on page 16 called "Renting Party of Property" (and this IRS publication in general is a great, user-friendly resource for the tax aspects of renting out real estate).

http://www.irs.gov/pub/irs-pdf/p527.pdf

Another Reader

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Re: 50% Rule for a Duplex I live in?
« Reply #2 on: November 18, 2014, 02:26:42 PM »
Since you are buying this property to use as a rental property (both units) in the future, the rule applies.  What you pay for it is based on the income the property could produce if both halves were rented.  However, the location and the property amenities also have to meet your needs as the occupant of half the property.  In other words, the property has to be a good investment and a suitable place to live.  If you can't find a property that meets both objectives, then I would abandon the idea.