Yes. Renting to relatives at less than fair market value constitutes personal use by you, rather than rental use. You may exclude up to $500,000 of capital gains on the entire duplex.
Ask your county treasurer who pays the excise taxes when you sell.
Check out Title 54 of the NJ Permanent Statutes to see if you can claim a similar exemption on your NJ state return. Or just call the local H&R Block.
This post does not constitute legal advice, nor does it create an attorney-client relationship. Postings are based only on the information provided and you should consult an attorney in your area before relying on information contained in this post.