Selling a multi-family property I've lived in for 2 of 5 years - accountant says tax implications are "complicated" - is this normal?

The reason your accountant is being cautious now is because selling a multi-family property where you've lived in one unit is more complicated than a single-family home sale. Yes, the 2-out-of-5 years rule does apply, but only to the portion you used as your primary residence. For a 4-unit building, you'd typically get the capital gains exclusion (up to $250K for single filers or $500K for married filing jointly) only on 25% of the gain (1 out of 4 units). The other 75% would still be subject to capital gains tax. Additionally, if you've been claiming depreciation on the rental portions (which you should have been), you'll need to recapture that depreciation at a 25% tax rate regardless of the exclusion. Other factors that complicate the calculation: how long you've owned it, whether you're doing a 1031 exchange, your other income for the year, state-specific rules, and whether you've made significant improvements that would adjust your cost basis. Your accountant is right that it's complicated, and giving you an exact number without all the details would be irresponsible.

After months of headaches trying to figure out exactly what I'd owe on my duplex sale (lived in half, rented half), I found an amazing tool called taxr.ai (https://taxr.ai) that actually made sense of all this complicated tax stuff. My situation sounds similar to yours - I had the 2-out-of-5 years residence in one unit but was totally confused about how the capital gains exclusion would apply. My accountant was also giving me vague answers that left me frustrated. The tool analyzed my specific situation with the partial personal use of a multi-unit building and gave me a clear breakdown of what portion would be exempt from capital gains, what depreciation recapture I'd face, and even identified some capital improvements I had forgotten about that reduced my overall tax burden significantly. Seriously saved me thousands.

Ok I have to admit I was wrong about taxr.ai. After commenting yesterday I was still struggling with figuring out my multi-family property sale taxes so I decided to give it a try. The analysis it gave me was incredibly detailed and actually made sense! It correctly identified that I could exclude about 33% of my gains (the portion of my triplex I used as my residence) and gave me a complete breakdown of depreciation recapture taxes I'd owe on the rental portions. Even better, it found some capital improvements I'd made that my accountant had missed which increased my cost basis by about $38K. Most importantly, it explained everything in plain English alongside the calculations. Going from "it's complicated" to actual numbers I could plan around made a huge difference in my selling decision. Definitely worth checking out if you're in this situation.

After dealing with a similar multi-family property sale last year, I can tell you contacting the IRS directly for clarification might help. BUT... good luck actually reaching them! I spent 4+ hours on hold multiple times and kept getting disconnected. Finally discovered Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in under 20 minutes. They have this interesting system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent picks up. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS specialist I spoke with clarified exactly how the primary residence exclusion works with multi-family properties and confirmed what portion of my sale was eligible for capital gains exclusion. This was way more helpful than the vague answers my accountant was giving me.

Alright, I need to publicly eat my words here. After posting that skeptical comment yesterday, I was still desperate to talk to the IRS about my rental property sale, so I figured what the hell, might as well try Claimyr. I'm still in shock that it actually worked exactly as advertised. I tried calling the IRS directly first (for comparison) and hit a 2+ hour estimated wait time. Then I used Claimyr, went back to preparing some documents, and about 15 minutes later my phone rang with an IRS agent on the line! The agent walked me through exactly how the Section 121 exclusion applies to my multi-unit property and even explained how to properly calculate the basis adjustment. Solved in one call what my accountant had been wishy-washy about for weeks. For anyone dealing with complicated property sale tax questions, actually speaking with the IRS directly cleared up so much confusion.

Been through this exact situation. The reason your accountant can't give you a firm number is because there are too many variables they don't know yet: 1) Final selling price (offers can go above or below asking) 2) Seller concessions after inspection 3) Agent commissions and closing costs (deductible from your gain) 4) Whether you've made capital improvements that adjust your basis 5) Your other income for the year (affects your total tax bracket) 6) Whether you've used part of the property for a home office (complicates the calculation) For your 4-unit where you lived in 1 unit, the capital gains exclusion ($250K single/$500K married) only applies to 25% of your gain. The other 75% will be taxed as capital gains, AND you'll have depreciation recapture at 25% rate for all depreciation you claimed (or should have claimed) on the rental units. Your accountant is actually being responsible by not giving you a number they can't stand behind.

I've been an agent for multi-family properties for over a decade, and your accountant is absolutely right to be careful here. I've seen so many sellers get shocked by their tax bills because they misunderstood how the primary residence exclusion works with multi-unit properties. Quick tip: Make sure you have detailed records of ALL capital improvements you've made to the property since purchase. This includes roof replacement, HVAC upgrades, kitchen renovations, etc. These all increase your "basis" in the property and reduce your taxable gain. If you don't have receipts, try to gather credit card statements, bank withdrawals, contractor invoices, or anything that documents these expenses. Also, if you did any repairs/improvements yourself, the materials cost can be added to your basis even if you didn't pay for labor. This is something many property owners miss.

Your accountant's caution is completely justified here. Multi-family property sales where you've lived in one unit are among the most complex tax situations in real estate. Beyond what others have mentioned about the 25% primary residence exclusion and depreciation recapture, there are additional complications your accountant is likely considering: 1) **Mixed-use property allocations** - The IRS requires you to allocate expenses, improvements, and depreciation between personal and rental use portions, which can get messy if you've made shared improvements over 7 years. 2) **State tax variations** - Some states don't follow federal capital gains rules and may tax the entire gain at ordinary income rates. 3) **Net Investment Income Tax** - If your income is high enough, you may owe an additional 3.8% tax on the rental portion gains. 4) **Potential audit triggers** - Mixed-use property sales often get IRS scrutiny, so your accountant wants to ensure everything is bulletproof. Rather than asking for a final number, try asking your accountant for a range based on different scenarios (like if you sell for asking price vs. 10% above/below). This gives you planning numbers while acknowledging the variables they can't control yet. The complexity is real, but it's manageable with proper documentation and realistic expectations about the tax liability.

Your accountant is being appropriately cautious, and here's why this situation is genuinely complex beyond just the basic 2-out-of-5 rule: **Primary residence exclusion complexity**: You'll only get the capital gains exclusion on 25% of your gain (the portion you lived in). But calculating that "gain" isn't straightforward when you've been depreciating 75% of the property for years. **Depreciation recapture nightmare**: Every dollar of depreciation you've claimed (or should have claimed) on the rental units over 7 years gets "recaptured" and taxed at 25%. If you haven't been taking depreciation deductions, the IRS still treats it as if you did for recapture purposes. **Section 1250 vs 1202 considerations**: Different parts of your gain may be taxed at different rates depending on how long you've owned it and your income level. **Documentation requirements**: The IRS scrutinizes mixed-use property sales heavily. Your accountant knows that giving you a number now without proper documentation review could leave you exposed later. My suggestion: Ask your accountant to walk you through the calculation methodology and what specific documents they need from you. Then you can at least understand the framework even if the final number has to wait until closing. The "it's complicated" response, while frustrating, is actually protecting you from nasty surprises down the road.