Planning for sale. Questions about capital gains, and shared ownership. (tenant, investment)

[BostonMike7]

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Background

Purchased a forclosed condo in April 2010 for 170K. My father and I co-own with a 50/50 split. Put down ~$50K as down payment. Bought as investment/rental

• Sister lived in unit May '10 to Dec '11. Utility bills were in my name. Rent was claimed
• New, non-friend/family tenant lives there Jan '12 to Feb'13
• Feb '13, I move in, and make my primary residence

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I'm just starting to do my homework involving a potential sale this summer/fall. Other similar sized units in my building are now selling approx $200-210K for same sq footage. I've done some upgrades since purchase, new paint, electrical fixtures, and basically prepping for a sale.

Assuming the same is in the 200-210K range, this should avoid any capital gains since we are under the $250K limit, however you must live in the home for 2 of the last 5 years. This is where I get confused because my father has never lived there (and owns his own primary home) while I've been there for nearly 1 year. So i'm unsure what this would mean for him, and if i need to remain there for 1 more year in order to meet the legal requirement? What confuses me even more is question #2.

My father wants to give me his share of the condo. In other words, he will surrender whatever equity stake he has in the unit to me, so any proceeds of a sale would go directly to me. However, as stated above, we are both 50/50 owners. Unsure if this can be done before selling, or as part of the sale, or what?

I'd like to take the ~ $90K equity and buy a home in a different location. Not in any sort of rush, but would love to do it this summer/fall. However, trying to understand the tax/legal rammifications of our situation.

[mdcrim]

If you sold it now I believe you both would have to pay capital gains on the profit. If you live there for two years, then you should be able to take the primary residence exemption on your half of the profits but your dad would still have to pay capital gains on his half.

I'm not sure what would happen if he gifted you his ownership- I think taxes would be very, very complicated (he'd probably have to pay gift tax on the profit on his half of the property or something). Either way I think you'd still have to live there for at least two years. I am not an accountant, just someone who has owned rental properties and does their own taxes.