§121 — Exclusion of gain from sale of principal residence
125 citing cases
Statute Text — 26 U.S.C. §121
Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.
The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.
In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—
either spouse meets the ownership requirements of subsection (a) with respect to such property;
both spouses meet the use requirements of subsection (a) with respect to such property; and
neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).
If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.
Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied.
In the case of a sale or exchange of property by an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death.
Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use.
For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which—
the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to
the period such property was owned by the taxpayer.
For purposes of this paragraph—
The term “period of nonqualified use” means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse.
The term “period of nonqualified use” does not include—
any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer’s spouse,
any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer’s spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and
any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary.
For purposes of this paragraph—
subparagraph (A) shall be applied after the application of subsection (d)(6), and
subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies.
In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to—
the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as
the shorter of—
the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence; or
the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to
2 years.
This subsection shall apply to any sale or exchange if—
subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of—
a failure to meet the ownership and use requirements of subsection (a), or
subsection (b)(3), and
such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.
If a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use requirements of subsection (a) with respect to such property.
For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, the period such unmarried individual owned and used such property shall include the period such deceased spouse owned and used such property before death.
For purposes of this section—
In the case of an individual holding property transferred to such individual in a transaction described in section 1041(a), the period such individual owns such property shall include the period the transferor owned the property.
Solely for purposes of this section, an individual shall be treated as using property as such individual’s principal residence during any period of ownership while such individual’s spouse or former spouse is granted use of the property under a divorce or separation instrument.
For purposes of this paragraph, the term “divorce or separation instrument” means—
a decree of divorce or separate maintenance or a written instrument incident to such a decree,
a written separation agreement, or
a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.
For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then—
the holding requirements of subsection (a) shall be applied to the holding of such stock, and
the use requirements of subsection (a) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder.
For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property.
In applying section 1033 (relating to involuntary conversions), the amount realized from the sale or exchange of property shall be treated as being the amount determined without regard to this section, reduced by the amount of gain not included in gross income pursuant to this section.
If the basis of the property sold or exchanged is determined (in whole or in part) under section 1033(b) (relating to basis of property acquired through involuntary conversion), then the holding and use by the taxpayer of the converted property shall be treated as holding and use by the taxpayer of the property sold or exchanged.
Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to periods after May 6, 1997, in respect of such property.
In the case of a taxpayer who—
becomes physically or mentally incapable of self-care, and
owns property and uses such property as the taxpayer’s principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such property as the taxpayer’s principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer’s condition.
For purposes of this section—
At the election of the taxpayer, this section shall not fail to apply to the sale or exchange of an interest in a principal residence by reason of such interest being a remainder interest in such residence, but this section shall not apply to any other interest in such residence which is sold or exchanged separately.
Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual’s spouse is serving on qualified official extended duty—
as a member of the uniformed services,
as a member of the Foreign Service of the United States, or
as an employee of the intelligence community.
The 5-year period described in subsection (a) shall not be extended more than 10 years by reason of subparagraph (A).
For purposes of this paragraph—
The term “qualified official extended duty” means any extended duty while serving at a duty station which is at least 50 miles from such property or while residing under Government orders in Government quarters.
The term “uniformed services” has the meaning given such term by section 101(a)(5) of title 10, United States Code, as in effect on the date of the enactment of this paragraph.
The term “member of the Foreign Service of the United States” has the meaning given the term “member of the Service” by paragraph (1), (2), (3), (4), or (5) of section 103 of the Foreign Service Act of 1980, as in effect on the date of the enactment of this paragraph.
The term “employee of the intelligence community” means an employee (as defined by
section 2105 of title 5
, United States Code) of—
the Office of the Director of National Intelligence,
the Central Intelligence Agency,
the National Security Agency,
the Defense Intelligence Agency,
the National Geospatial-Intelligence Agency,
the National Reconnaissance Office,
any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs,
any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard,
the Bureau of Intelligence and Research of the Department of State, or
any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.
The term “extended duty” means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
An election under subparagraph (A) with respect to any property may not be made if such an election is in effect with respect to any other property.
An election under subparagraph (A) may be revoked at any time.
If a taxpayer acquires property in an exchange with respect to which gain is not recognized (in whole or in part) to the taxpayer under subsection (a) or (b) of section 1031, subsection (a) shall not apply to the sale or exchange of such property by such taxpayer (or by any person whose basis in such property is determined, in whole or in part, by reference to the basis in the hands of such taxpayer) during the 5-year period beginning with the date of such acquisition.
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual’s spouse is serving outside the United States—
on qualified official extended duty (as defined in paragraph (9)(C)) as an employee of the Peace Corps, or
as an enrolled volunteer or volunteer leader under section 5 or 6 (as the case may be) of the Peace Corps Act (
22 U.S.C. 2504
, 2505).
For purposes of subparagraph (A), rules similar to the rules of subparagraphs (B) and (D) of paragraph (9) shall apply.
This section shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) applies to such individual.
This section shall not apply to any sale or exchange with respect to which the taxpayer elects not to have this section apply.
For purposes of this section, in the case of property the acquisition of which by the taxpayer resulted under section 1034 11 See References in Text note below. (as in effect on the day before the date of the enactment of this section) in the nonrecognition of any part of the gain realized on the sale or exchange of another residence, in determining the period for which the taxpayer has owned and used such property as the taxpayer’s principal residence, there shall be included the aggregate periods for which such other residence (and each prior residence taken into account under section 1223(6) 1 in determining the holding period of such property) had been so owned and used.
Treasury Regulations
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Treas. Reg. §1.121-1Exclusion of gain from sale or exchange of a principal residence
(a) In general. Section 121 provides that, under certain circumstances, gross income does not include gain realized on the sale or exchange of property that was owned and used by a taxpayer as the taxpayer's principal residence. Subject to the other provisions of section 121, a taxpayer may exclude gain only if, during the 5-year period ending on the date of the sale or exchange, the taxpayer owned and used the property as the taxpayer's principal residence for periods aggregating 2 years or more.
(b) Residence—(1) In general. Whether property is used by the taxpayer as the taxpayer's residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer's residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2)). Property used by the taxpayer as the taxpayer's residence does not include personal property that is not a fixture under local law.
(2) Principal residence. In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer as the taxpayer's principal residence depends upon all the facts and circumstances. If a taxpayer alternates between 2 properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer's principal residence. In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to—
(i) The taxpayer's place of employment;
(ii) The principal place of abode of the taxpayer's family members;
(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;
(iv) The taxpayer's mailing address for bills and correspondence;
(v) The location of the taxpayer's banks; and
(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.
(3) Vacant land—(i) In general. The sale or exchange of vacant land is not a sale or exchange of the taxpayer's principal residence unless—
(A) The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;
(B) The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;
(C) The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and
(D) The requirements of section 121 have otherwise been met with respect to the vacant land.
(ii) Limitations—(A) Maximum limitation amount. For purposes of section 121(b)(1) and (2) (relating to the maximum limitation amount of the section 121 exclusion), the sale or exchange of the dwelling unit and the vacant land are treated as one sale or exchange. Therefore, only one maximum limitation amount of $250,000 ($500,000 for certain joint returns) applies to the combined sales or exchanges of vacant land and the dwelling unit. In applying the maximum limitation amount to sales or exchanges that occur in different taxable years, gain from the sale or exchange of the dwelling unit, up to the maximum limitation amount under section 121(b)(1) or (2), is excluded first and each spouse is treated as excluding one-half of the gain from a sale or exchange to which section 121(b)(2)(A) and § 1.121-2(a)(3)(i) (relating to the limitation for certain joint returns) apply.
(B) Sale or exchange of more than one principal residence in 2-year period. If a dwelling unit and vacant land are sold or exchanged in separate transactions that qualify for the section 121 exclusion under this paragraph (b)(3), each of the transactions is disregarded in applying section 121(b)(3) (restricting the application of section 121 to only 1 sale or exchange every 2 years) to the other transactions but is taken into account as a sale or exchange of a principal residence on the date of the transaction in applying section 121(b)(3) to that transaction and the sale or exchange of any other principal residence.
(C) Sale or exchange of vacant land before dwelling unit. If the sale or exchange of the dwelling unit occurs in a later taxable year than the sale or exchange of the vacant land and after the date prescribed by law (including extensions) for the filing of the return for the taxable year of the sale or exchange of the vacant land, any gain from the sale or exchange of the vacant land must be treated as taxable on the taxpayer's return for the taxable year of the sale or exchange of the vacant land. If the taxpayer has reported gain from the sale or exchange of the vacant land as taxable, after satisfying the requirements of this paragraph (b)(3) the taxpayer may claim the section 121 exclusion with regard to the sale or exchange of the vacant land (for any period for which the period of limitation under section 6511 has not expired) by filing an amended return.
(4) Examples. The provisions of this paragraph (b) are illustrated by the following examples:
(c) Ownership and use requirements—(1) In general. The requirements of ownership and use for periods aggregating 2 years or more may be satisfied by establishing ownership and use for 24 full months or for 730 days (365 × 2). The requirements of ownership and use may be satisfied during nonconcurrent periods if both the ownership and use tests are met during the 5-year period ending on the date of the sale or exchange.
(2) Use. (i) In establishing whether a taxpayer has satisfied the 2-year use requirement, occupancy of the residence is required. However, short temporary absences, such as for vacation or other seasonal absence (although accompanied with rental of the residence), are counted as periods of use.
(ii) Determination of use during periods of out-of-residence care. If a taxpayer has become physically or mentally incapable of self-care and the taxpayer sells or exchanges property that the taxpayer owned and used as the taxpayer's principal residence for periods aggregating at least 1 year during the 5-year period preceding the sale or exchange, the taxpayer is treated as using the property as the taxpayer's principal residence for any period of time during the 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer's condition.
(3) Ownership—(i) Trusts. If a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.
(ii) Certain single owner entities. If a residence is owned by an eligible entity (within the meaning of § 301.7701-3(a) of this chapter) that has a single owner and is disregarded for federal tax purposes as an entity separate from its owner under § 301.7701-3 of this chapter, the owner will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the entity will be treated as if made by the owner.
(4) Examples. The provisions of this paragraph (c) are illustrated by the following examples. The examples assume that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The examples are as follows:
(d) Depreciation taken after May 6, 1997—(1) In general. The section 121 exclusion does not apply to so much of the gain from the sale or exchange of property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to the property for periods after May 6, 1997. Depreciation adjustments allocable to any portion of the property to which the section 121 exclusion does not apply under paragraph (e) of this section are not taken into account for this purpose.
(2) Example. The provisions of this paragraph (d) are illustrated by the following example:
(e) Property used in part as a principal residence—(1) Allocation required. Section 121 will not apply to the gain allocable to any portion (separate from the dwelling unit) of property sold or exchanged with respect to which a taxpayer does not satisfy the use requirement. Thus, if a portion of the property was used for residential purposes and a portion of the property (separate from the dwelling unit) was used for non-residential purposes, only the gain allocable to the residential portion is excludable under section 121. No allocation is required if both the residential and non-residential portions of the property are within the same dwelling unit. However, section 121 does not apply to the gain allocable to the residential portion of the property to the extent provided by paragraph (d) of this section.
(2) Dwelling unit. For purposes of this paragraph (e), the term dwelling unit has the same meaning as in section 280A(f)(1), but does not include appurtenant structures or other property.
(3) Method of allocation. For purposes of determining the amount of gain allocable to the residential and non-residential portions of the property, the taxpayer must allocate the basis and the amount realized between the residential and the non-residential portions of the property using the same method of allocation that the taxpayer used to determine depreciation adjustments (as defined in section 1250(b)(3)), if applicable.
(4) Examples. The provisions of this paragraph (e) are illustrated by the following examples:
(f) Effective date. This section is applicable for sales and exchanges on or after Decmeber 24, 2002. For rules on electing to apply the provisions of this section retroactively, see § 1.121-4(j).
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Treas. Reg. §1.121-1(a)In general.
In general. Section 121 provides that, under certain circumstances, gross income does not include gain realized on the sale or exchange of property that was owned and used by a taxpayer as the taxpayer's principal residence. Subject to the other provisions of section 121, a taxpayer may exclude gain only if, during the 5-year period ending on the date of the sale or exchange, the taxpayer owned and used the property as the taxpayer's principal residence for periods aggregating 2 years or more.
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Treas. Reg. §1.121-1(b)Residence—(1) In general.
Residence—(1) In general. Whether property is used by the taxpayer as the taxpayer's residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer's residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2)). Property used by the taxpayer as the taxpayer's residence does not include personal property that is not a fixture under local law.
(2) Principal residence. In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer as the taxpayer's principal residence depends upon all the facts and circumstances. If a taxpayer alternates between 2 properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer's principal residence. In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to—
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Treas. Reg. §1.121-1(c)Ownership and use requirements—(1) In general.
Ownership and use requirements—(1) In general. The requirements of ownership and use for periods aggregating 2 years or more may be satisfied by establishing ownership and use for 24 full months or for 730 days (365 × 2). The requirements of ownership and use may be satisfied during nonconcurrent periods if both the ownership and use tests are met during the 5-year period ending on the date of the sale or exchange.
(2) Use. (i) In establishing whether a taxpayer has satisfied the 2-year use requirement, occupancy of the residence is required. However, short temporary absences, such as for vacation or other seasonal absence (although accompanied with rental of the residence), are counted as periods of use.
(ii) Determination of use during periods of out-of-residence care. If a taxpayer has become physically or mentally incapable of self-care and the taxpayer sells or exchanges property that the taxpayer owned and used as the taxpayer's principal residence for periods aggregating at least 1 year during the 5-year period preceding the sale or exchange, the taxpayer is treated as using the property as the taxpayer's principal residence for any period of time during the 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer's condition.
(3) Ownership—(i) Trusts. If a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.
(ii) Certain single owner entities. If a residence is owned by an eligible entity (within the meaning of § 301.7701-3(a) of this chapter) that has a single owner and is disregarded for federal tax purposes as an entity separate from its owner under § 301.7701-3 of this chapter, the owner will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the entity will be treated as if made by the owner.
(4) Examples. The provisions of this paragraph (c) are illustrated by the following examples. The examples assume that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The examples are as follows:
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Treas. Reg. §1.121-1(d)Depreciation taken after May 6, 1997—(1) In general.
Depreciation taken after May 6, 1997—(1) In general. The section 121 exclusion does not apply to so much of the gain from the sale or exchange of property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to the property for periods after May 6, 1997. Depreciation adjustments allocable to any portion of the property to which the section 121 exclusion does not apply under paragraph (e) of this section are not taken into account for this purpose.
(2) Example. The provisions of this paragraph (d) are illustrated by the following example:
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Treas. Reg. §1.121-1(e)Property used in part as a principal residence—(1) Allocation required.
Property used in part as a principal residence—(1) Allocation required. Section 121 will not apply to the gain allocable to any portion (separate from the dwelling unit) of property sold or exchanged with respect to which a taxpayer does not satisfy the use requirement. Thus, if a portion of the property was used for residential purposes and a portion of the property (separate from the dwelling unit) was used for non-residential purposes, only the gain allocable to the residential portion is excludable under section 121. No allocation is required if both the residential and non-residential portions of the property are within the same dwelling unit. However, section 121 does not apply to the gain allocable to the residential portion of the property to the extent provided by paragraph (d) of this section.
(2) Dwelling unit. For purposes of this paragraph (e), the term dwelling unit has the same meaning as in section 280A(f)(1), but does not include appurtenant structures or other property.
(3) Method of allocation. For purposes of determining the amount of gain allocable to the residential and non-residential portions of the property, the taxpayer must allocate the basis and the amount realized between the residential and the non-residential portions of the property using the same method of allocation that the taxpayer used to determine depreciation adjustments (as defined in section 1250(b)(3)), if applicable.
(4) Examples. The provisions of this paragraph (e) are illustrated by the following examples:
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Treas. Reg. §1.121-1(f)Effective date.
Effective date. This section is applicable for sales and exchanges on or after Decmeber 24, 2002. For rules on electing to apply the provisions of this section retroactively, see § 1.121-4(j).
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Treas. Reg. §1.121-1(i)§1.121-1(i)
The taxpayer's place of employment;
(ii) The principal place of abode of the taxpayer's family members;
(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;
(iv) The taxpayer's mailing address for bills and correspondence;
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Treas. Reg. §1.121-1(v)§1.121-1(v)
The location of the taxpayer's banks; and
(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.
(3) Vacant land—(i) In general. The sale or exchange of vacant land is not a sale or exchange of the taxpayer's principal residence unless—
(A) The vacant land is adjacent to land containing the dwelling unit of the taxpayer's principal residence;
(B) The taxpayer owned and used the vacant land as part of the taxpayer's principal residence;
(C) The taxpayer sells or exchanges the dwelling unit in a sale or exchange that meets the requirements of section 121 within 2 years before or 2 years after the date of the sale or exchange of the vacant land; and
(D) The requirements of section 121 have otherwise been met with respect to the vacant land.
(ii) Limitations—(A) Maximum limitation amount. For purposes of section 121(b)(1) and (2) (relating to the maximum limitation amount of the section 121 exclusion), the sale or exchange of the dwelling unit and the vacant land are treated as one sale or exchange. Therefore, only one maximum limitation amount of $250,000 ($500,000 for certain joint returns) applies to the combined sales or exchanges of vacant land and the dwelling unit. In applying the maximum limitation amount to sales or exchanges that occur in different taxable years, gain from the sale or exchange of the dwelling unit, up to the maximum limitation amount under section 121(b)(1) or (2), is excluded first and each spouse is treated as excluding one-half of the gain from a sale or exchange to which section 121(b)(2)(A) and § 1.121-2(a)(3)(i) (relating to the limitation for certain joint returns) apply.
(B) Sale or exchange of more than one principal residence in 2-year period. If a dwelling unit and vacant land are sold or exchanged in separate transactions that qualify for the section 121 exclusion under this paragraph (b)(3), each of the transactions is disregarded in applying section 121(b)(3) (restricting the application of section 121 to only 1 sale or exchange every 2 years) to the other transactions but is taken into account as a sale or exchange of a principal residence on the date of the transaction in applying section 121(b)(3) to that transaction and the sale or exchange of any other principal residence.
(C) Sale or exchange of vacant land before dwelling unit. If the sale or exchange of the dwelling unit occurs in a later taxable year than the sale or exchange of the vacant land and after the date prescribed by law (including extensions) for the filing of the return for the taxable year of the sale or exchange of the vacant land, any gain from the sale or exchange of the vacant land must be treated as taxable on the taxpayer's return for the taxable year of the sale or exchange of the vacant land. If the taxpayer has reported gain from the sale or exchange of the vacant land as taxable, after satisfying the requirements of this paragraph (b)(3) the taxpayer may claim the section 121 exclusion with regard to the sale or exchange of the vacant land (for any period for which the period of limitation under section 6511 has not expired) by filing an amended return.
(4) Examples. The provisions of this paragraph (b) are illustrated by the following examples:
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Treas. Reg. §1.121-2Limitations
(a) Dollar limitations—(1) In general. A taxpayer may exclude from gross income up to $250,000 of gain from the sale or exchange of the taxpayer's principal residence. A taxpayer is eligible for only one maximum exclusion per principal residence.
(2) Joint owners. If taxpayers jointly own a principal residence but file separate returns, each taxpayer may exclude from gross income up to $250,000 of gain that is attributable to each taxpayer's interest in the property, if the requirements of section 121 have otherwise been met.
(3) Special rules for joint returns—(i) In general. A husband and wife who make a joint return for the year of the sale or exchange of a principal residence may exclude up to $500,000 of gain if—
(A) Either spouse meets the 2-year ownership requirements of § 1.121-1(a) and (c);
(B) Both spouses meet the 2-year use requirements of § 1.121-1(a) and (c); and
(C) Neither spouse excluded gain from a prior sale or exchange of property under section 121 within the last 2 years (as determined under paragraph (b) of this section).
(ii) Other joint returns. For taxpayers filing jointly, if either spouse fails to meet the requirements of paragraph (a)(3)(i) of this section, the maximum limitation amount to be claimed by the couple is the sum of each spouse's limitation amount determined on a separate basis as if they had not been married. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.
(4) Examples. The provisions of this paragraph (a) are illustrated by the following examples. The examples assume that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The examples are as follows:
(b) Application of section 121 to only 1 sale or exchange every 2 years—(1) In general. Except as otherwise provided in § 1.121-3 (relating to the reduced maximum exclusion), a taxpayer may not exclude from gross income gain from the sale or exchange of a principal residence if, during the 2-year period ending on the date of the sale or exchange, the taxpayer sold or exchanged other property for which gain was excluded under section 121. For purposes of this paragraph (b)(1), any sale or exchange before May 7, 1997, is disregarded.
(2) Example. The following example illustrates the rules of this paragraph (b). The example assumes that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The example is as follows:
(c) Effective date. This section is applicable for sales and exchanges on or after December 24, 2002. For rules on electing to apply the provisions of this section retroactively, see § 1.121-4(j).
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Treas. Reg. §1.121-2(a)Dollar limitations—(1) In general.
Dollar limitations—(1) In general. A taxpayer may exclude from gross income up to $250,000 of gain from the sale or exchange of the taxpayer's principal residence. A taxpayer is eligible for only one maximum exclusion per principal residence.
(2) Joint owners. If taxpayers jointly own a principal residence but file separate returns, each taxpayer may exclude from gross income up to $250,000 of gain that is attributable to each taxpayer's interest in the property, if the requirements of section 121 have otherwise been met.
(3) Special rules for joint returns—(i) In general. A husband and wife who make a joint return for the year of the sale or exchange of a principal residence may exclude up to $500,000 of gain if—
(A) Either spouse meets the 2-year ownership requirements of § 1.121-1(a) and (c);
(B) Both spouses meet the 2-year use requirements of § 1.121-1(a) and (c); and
(C) Neither spouse excluded gain from a prior sale or exchange of property under section 121 within the last 2 years (as determined under paragraph (b) of this section).
(ii) Other joint returns. For taxpayers filing jointly, if either spouse fails to meet the requirements of paragraph (a)(3)(i) of this section, the maximum limitation amount to be claimed by the couple is the sum of each spouse's limitation amount determined on a separate basis as if they had not been married. For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property.
(4) Examples. The provisions of this paragraph (a) are illustrated by the following examples. The examples assume that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The examples are as follows:
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Treas. Reg. §1.121-2(b)Application of section 121 to only 1 sale or exchange every 2 years—(1) In general.
Application of section 121 to only 1 sale or exchange every 2 years—(1) In general. Except as otherwise provided in § 1.121-3 (relating to the reduced maximum exclusion), a taxpayer may not exclude from gross income gain from the sale or exchange of a principal residence if, during the 2-year period ending on the date of the sale or exchange, the taxpayer sold or exchanged other property for which gain was excluded under section 121. For purposes of this paragraph (b)(1), any sale or exchange before May 7, 1997, is disregarded.
(2) Example. The following example illustrates the rules of this paragraph (b). The example assumes that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The example is as follows:
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Treas. Reg. §1.121-2(c)Effective date.
Effective date. This section is applicable for sales and exchanges on or after December 24, 2002. For rules on electing to apply the provisions of this section retroactively, see § 1.121-4(j).
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Treas. Reg. §1.121-3Reduced maximum exclusion for taxpayers failing to meet certain requirements
(a) In general. In lieu of the limitation under section 121(b) and § 1.121-2, a reduced maximum exclusion limitation may be available for a taxpayer who sells or exchanges property used as the taxpayer's principal residence but fails to satisfy the ownership and use requirements described in § 1.121-1(a) and (c) or the 2-year limitation described in § 1.121-2(b).
(b) Primary reason for sale or exchange. In order for a taxpayer to claim a reduced maximum exclusion under section 121(c), the sale or exchange must be by reason of a change in place of employment, health, or unforeseen circumstances. If a safe harbor described in this section applies, a sale or exchange is deemed to be by reason of a change in place of employment, health, or unforeseen circumstances. If a safe harbor described in this section does not apply, a sale or exchange is by reason of a change in place of employment, health, or unforeseen circumstances only if the primary reason for the sale or exchange is a change in place of employment (within the meaning of paragraph (c) of this section), health (within the meaning of paragraph (d) of this section), or unforeseen circumstances (within the meaning of paragraph (e) of this section). Whether the requirements of this section are satisfied depends upon all the facts and circumstances. Factors that may be relevant in determining the taxpayer's primary reason for the sale or exchange include (but are not limited to) the extent to which—
(1) The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time;
(2) The suitability of the property as the taxpayer's principal residence materially changes;
(3) The taxpayer's financial ability to maintain the property is materially impaired;
(4) The taxpayer uses the property as the taxpayer's residence during the period of the taxpayer's ownership of the property;
(5) The circumstances giving rise to the sale or exchange are not reasonably foreseeable when the taxpayer begins using the property as the taxpayer's principal residence; and
(6) The circumstances giving rise to the sale or exchange occur during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence.
(c) Sale or exchange by reason of a change in place of employment—(1) In general. A sale or exchange is by reason of a change in place of employment if, in the case of a qualified individual described in paragraph (f) of this section, the primary reason for the sale or exchange is a change in the location of the individual's employment.
(2) Distance safe harbor. A sale or exchange is deemed to be by reason of a change in place of employment (within the meaning of paragraph (c)(1) of this section) if—
(i) The change in place of employment occurs during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence; and
(ii) The qualified individual's new place of employment is at least 50 miles farther from the residence sold or exchanged than was the former place of employment, or, if there was no former place of employment, the distance between the qualified individual's new place of employment and the residence sold or exchanged is at least 50 miles.
(3) Employment. For purposes of this paragraph (c), employment includes the commencement of employment with a new employer, the continuation of employment with the same employer, and the commencement or continuation of self-employment.
(4) Examples. The following examples illustrate the rules of this paragraph (c):
(d) Sale or exchange by reason of health—(1) In general. A sale or exchange is by reason of health if the primary reason for the sale or exchange is to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual described in paragraph (f) of this section, or to obtain or provide medical or personal care for a qualified individual suffering from a disease, illness, or injury. A sale or exchange that is merely beneficial to the general health or well-being of an individual is not a sale or exchange by reason of health.
(2) Physician's recommendation safe harbor. A sale or exchange is deemed to be by reason of health if a physician (as defined in section 213(d)(4)) recommends a change of residence for reasons of health (as defined in paragraph (d)(1) of this section).
(3) Examples. The following examples illustrate the rules of this paragraph (d):
(e) Sale or exchange by reason of unforeseen circumstances—(1) In general. A sale or exchange is by reason of unforeseen circumstances if the primary reason for the sale or exchange is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. A sale or exchange by reason of unforeseen circumstances (other than a sale or exchange deemed to be by reason of unforeseen circumstances under paragraph (e)(2) or (3) of this section) does not qualify for the reduced maximum exclusion if the primary reason for the sale or exchange is a preference for a different residence or an improvement in financial circumstances.
(2) Specific event safe harbors. A sale or exchange is deemed to be by reason of unforeseen circumstances (within the meaning of paragraph (e)(1) of this section) if any of the events specified in paragraphs (e)(2)(i) through (iii) of this section occur during the period of the taxpayer's ownership and use of the residence as the taxpayer's principal residence:
(i) The involuntary conversion of the residence.
(ii) Natural or man-made disasters or acts of war or terrorism resulting in a casualty to the residence (without regard to deductibility under section 165(h)).
(iii) In the case of a qualified individual described in paragraph (f) of this section—
(A) Death;
(B) The cessation of employment as a result of which the qualified individual is eligible for unemployment compensation (as defined in section 85(b));
(C) A change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses for the taxpayer's household (including amounts for food, clothing, medical expenses, taxes, transportation, court-ordered payments, and expenses reasonably necessary to the production of income, but not for the maintenance of an affluent or luxurious standard of living);
(D) Divorce or legal separation under a decree of divorce or separate maintenance; or
(E) Multiple births resulting from the same pregnancy.
(3) Designation of additional events as unforeseen circumstances. The Commissioner may designate other events or situations as unforeseen circumstances in published guidance of general applicability and may issue rulings addressed to specific taxpayers identifying other events or situations as unforeseen circumstances with regard to those taxpayers (see § 601.601(d)(2) of this chapter).
(4) Examples. The following examples illustrate the rules of this paragraph (e):
(f) Qualified individual. For purposes of this section, qualified individual means—
(1) The taxpayer;
(2) The taxpayer's spouse;
(3) A co-owner of the residence;
(4) A person whose principal place of abode is in the same household as the taxpayer; or
(5) For purposes of paragraph (d) of this section, a person bearing a relationship specified in sections 152(a)(1) through 152(a)(8) (without regard to qualification as a dependent) to a qualified individual described in paragraphs (f)(1) through (4) of this section, or a descendant of the taxpayer's grandparent.
(g) Computation of reduced maximum exclusion. (1) The reduced maximum exclusion is computed by multiplying the maximum dollar limitation of $250,000 ($500,000 for certain joint filers) by a fraction. The numerator of the fraction is the shortest of the period of time that the taxpayer owned the property during the 5-year period ending on the date of the sale or exchange; the period of time that the taxpayer used the property as the taxpayer's principal residence during the 5-year period ending on the date of the sale or exchange; or the period of time between the date of a prior sale or exchange of property for which the taxpayer excluded gain under section 121 and the date of the current sale or exchange. The numerator of the fraction may be expressed in days or months. The denominator of the fraction is 730 days or 24 months (depending on the measure of time used in the numerator).
(2) Examples. The following examples illustrate the rules of this paragraph (g):
(h) Effective dates. Paragraphs (a) and (g) of this section are applicable for sales and exchanges on or after December 24, 2002. Paragraphs (b) through (f) of this section are applicable for sales and exchanges on or after August 13, 2004.
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Treas. Reg. §1.121-3(a)In general.
In general. In lieu of the limitation under section 121(b) and § 1.121-2, a reduced maximum exclusion limitation may be available for a taxpayer who sells or exchanges property used as the taxpayer's principal residence but fails to satisfy the ownership and use requirements described in § 1.121-1(a) and (c) or the 2-year limitation described in § 1.121-2(b).
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Treas. Reg. §1.121-3(b)Primary reason for sale or exchange.
Primary reason for sale or exchange. In order for a taxpayer to claim a reduced maximum exclusion under section 121(c), the sale or exchange must be by reason of a change in place of employment, health, or unforeseen circumstances. If a safe harbor described in this section applies, a sale or exchange is deemed to be by reason of a change in place of employment, health, or unforeseen circumstances. If a safe harbor described in this section does not apply, a sale or exchange is by reason of a change in place of employment, health, or unforeseen circumstances only if the primary reason for the sale or exchange is a change in place of employment (within the meaning of paragraph (c) of this section), health (within the meaning of paragraph (d) of this section), or unforeseen circumstances (within the meaning of paragraph (e) of this section). Whether the requirements of this section are satisfied depends upon all the facts and circumstances. Factors that may be relevant in determining the taxpayer's primary reason for the sale or exchange include (but are not limited to) the extent to which—
(1) The sale or exchange and the circumstances giving rise to the sale or exchange are proximate in time;
(2) The suitability of the property as the taxpayer's principal residence materially changes;
(3) The taxpayer's financial ability to maintain the property is materially impaired;
(4) The taxpayer uses the property as the taxpayer's residence during the period of the taxpayer's ownership of the property;
(5) The circumstances giving rise to the sale or exchange are not reasonably foreseeable when the taxpayer begins using the property as the taxpayer's principal residence; and
(6) The circumstances giving rise to the sale or exchange occur during the period of the taxpayer's ownership and use of the property as the taxpayer's principal residence.
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Treas. Reg. §1.121-3(c)Sale or exchange by reason of a change in place of employment—(1) In general.
Sale or exchange by reason of a change in place of employment—(1) In general. A sale or exchange is by reason of a change in place of employment if, in the case of a qualified individual described in paragraph (f) of this section, the primary reason for the sale or exchange is a change in the location of the individual's employment.
(2) Distance safe harbor. A sale or exchange is deemed to be by reason of a change in place of employment (within the meaning of paragraph (c)(1) of this section) if—
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Treas. Reg. §1.121-3(d)Sale or exchange by reason of health—(1) In general.
Sale or exchange by reason of health—(1) In general. A sale or exchange is by reason of health if the primary reason for the sale or exchange is to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual described in paragraph (f) of this section, or to obtain or provide medical or personal care for a qualified individual suffering from a disease, illness, or injury. A sale or exchange that is merely beneficial to the general health or well-being of an individual is not a sale or exchange by reason of health.
(2) Physician's recommendation safe harbor. A sale or exchange is deemed to be by reason of health if a physician (as defined in section 213(d)(4)) recommends a change of residence for reasons of health (as defined in paragraph (d)(1) of this section).
(3) Examples. The following examples illustrate the rules of this paragraph (d):
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Treas. Reg. §1.121-3(e)Sale or exchange by reason of unforeseen circumstances—(1) In general.
Sale or exchange by reason of unforeseen circumstances—(1) In general. A sale or exchange is by reason of unforeseen circumstances if the primary reason for the sale or exchange is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence. A sale or exchange by reason of unforeseen circumstances (other than a sale or exchange deemed to be by reason of unforeseen circumstances under paragraph (e)(2) or (3) of this section) does not qualify for the reduced maximum exclusion if the primary reason for the sale or exchange is a preference for a different residence or an improvement in financial circumstances.
(2) Specific event safe harbors. A sale or exchange is deemed to be by reason of unforeseen circumstances (within the meaning of paragraph (e)(1) of this section) if any of the events specified in paragraphs (e)(2)(i) through (iii) of this section occur during the period of the taxpayer's ownership and use of the residence as the taxpayer's principal residence:
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Treas. Reg. §1.121-3(f)Qualified individual.
Qualified individual. For purposes of this section, qualified individual means—
(1) The taxpayer;
(2) The taxpayer's spouse;
(3) A co-owner of the residence;
(4) A person whose principal place of abode is in the same household as the taxpayer; or
(5) For purposes of paragraph (d) of this section, a person bearing a relationship specified in sections 152(a)(1) through 152(a)(8) (without regard to qualification as a dependent) to a qualified individual described in paragraphs (f)(1) through (4) of this section, or a descendant of the taxpayer's grandparent.
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Treas. Reg. §1.121-3(g)Computation of reduced maximum exclusion.
Computation of reduced maximum exclusion. (1) The reduced maximum exclusion is computed by multiplying the maximum dollar limitation of $250,000 ($500,000 for certain joint filers) by a fraction. The numerator of the fraction is the shortest of the period of time that the taxpayer owned the property during the 5-year period ending on the date of the sale or exchange; the period of time that the taxpayer used the property as the taxpayer's principal residence during the 5-year period ending on the date of the sale or exchange; or the period of time between the date of a prior sale or exchange of property for which the taxpayer excluded gain under section 121 and the date of the current sale or exchange. The numerator of the fraction may be expressed in days or months. The denominator of the fraction is 730 days or 24 months (depending on the measure of time used in the numerator).
(2) Examples. The following examples illustrate the rules of this paragraph (g):
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Treas. Reg. §1.121-3(h)Effective dates.
Effective dates. Paragraphs (a) and (g) of this section are applicable for sales and exchanges on or after December 24, 2002. Paragraphs (b) through (f) of this section are applicable for sales and exchanges on or after August 13, 2004.
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Treas. Reg. §1.121-3(i)The involuntary conversion of the residence.
The involuntary conversion of the residence.
(ii) Natural or man-made disasters or acts of war or terrorism resulting in a casualty to the residence (without regard to deductibility under section 165(h)).
(iii) In the case of a qualified individual described in paragraph (f) of this section—
(A) Death;
(B) The cessation of employment as a result of which the qualified individual is eligible for unemployment compensation (as defined in section 85(b));
(C) A change in employment or self-employment status that results in the taxpayer's inability to pay housing costs and reasonable basic living expenses for the taxpayer's household (including amounts for food, clothing, medical expenses, taxes, transportation, court-ordered payments, and expenses reasonably necessary to the production of income, but not for the maintenance of an affluent or luxurious standard of living);
(D) Divorce or legal separation under a decree of divorce or separate maintenance; or
(E) Multiple births resulting from the same pregnancy.
(3) Designation of additional events as unforeseen circumstances. The Commissioner may designate other events or situations as unforeseen circumstances in published guidance of general applicability and may issue rulings addressed to specific taxpayers identifying other events or situations as unforeseen circumstances with regard to those taxpayers (see § 601.601(d)(2) of this chapter).
(4) Examples. The following examples illustrate the rules of this paragraph (e):
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Treas. Reg. §1.121-4Special rules
(a) Property of deceased spouse—(1) In general. For purposes of satisfying the ownership and use requirements of section 121, a taxpayer is treated as owning and using property as the taxpayer's principal residence during any period that the taxpayer's deceased spouse owned and used the property as a principal residence before death if—
(i) The taxpayer's spouse is deceased on the date of the sale or exchange of the property; and
(ii) The taxpayer has not remarried at the time of the sale or exchange of the property.
(2) Example. The provisions of this paragraph (a) are illustrated by the following example. The example assumes that § 1.121-3 (relating to the reduced maximum exclusion) does not apply to the sale of the property. The example is as follows:
(b) Property owned by spouse or former spouse—(1) Property transferred to individual from spouse or former spouse. If a taxpayer obtains property from a spouse or former spouse in a transaction described in section 1041(a), the period that the taxpayer owns the property will include the period that the spouse or former spouse owned the property.
(2) Property used by spouse or former spouse. A taxpayer is treated as using property as the taxpayer's principal residence for any period that the taxpayer has an ownership interest in the property and the taxpayer's spouse or former spouse is granted use of the property under a divorce or separation instrument (as defined in section 71(b)(2)), provided that the spouse or former spouse uses the property as his or her principal residence.
(c) Tenant-stockholder in cooperative housing corporation. A taxpayer who holds stock as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2)) may be eligible to exclude gain under section 121 on the sale or exchange of the stock. In determining whether the taxpayer meets the requirements of section 121, the ownership requirements are applied to the holding of the stock and the use requirements are applied to the house or apartment that the taxpayer is entitled to occupy by reason of the taxpayer's stock ownership.
(d) Involuntary conversions—(1) In general. For purposes of section 121, the destruction, theft, seizure, requisition, or condemnation of property is treated as a sale of the property.
(2) Application of section 1033. In applying section 1033 (relating to involuntary conversions), the amount realized from the sale or exchange of property used as the taxpayer's principal residence is treated as being the amount determined without regard to section 121, reduced by the amount of gain excluded from the taxpayer's gross income under section 121.
(3) Property acquired after involuntary conversion. If the basis of the property acquired as a result of an involuntary conversion is determined (in whole or in part) under section 1033(b) (relating to the basis of property acquired through an involuntary conversion), then for purposes of satisfying the requirements of section 121, the taxpayer will be treated as owning and using the acquired property as the taxpayer's principal residence during any period of time that the taxpayer owned and used the converted property as the taxpayer's principal residence.
(4) Example. The provisions of this paragraph (d) are illustrated by the following example:
(e) Sales or exchanges of partial interests—(1) Partial interests other than remainder interests—(i) In general. Except as provided in paragraph (e)(2) of this section (relating to sales or exchanges of remainder interests), a taxpayer may apply the section 121 exclusion to gain from the sale or exchange of an interest in the taxpayer's principal residence that is less than the taxpayer's entire interest if the interest sold or exchanged includes an interest in the dwelling unit. For rules relating to the sale or exchange of vacant land, see § 1.121-1(b)(3).
(ii) Limitations—(A) Maximum limitation amount. For purposes of section 121(b)(1) and (2) (relating to the maximum limitation amount of the section 121 exclusion), sales or exchanges of partial interests in the same principal residence are treated as one sale or exchange. Therefore, only one maximum limitation amount of $250,000 ($500,000 for certain joint returns) applies to the combined sales or exchanges of the partial interests. In applying the maximum limitation amount to sales or exchanges that occur in different taxable years, a taxpayer may exclude gain from the first sale or exchange of a partial interest up to the taxpayer's full maximum limitation amount and may exclude gain from the sale or exchange of any other partial interest in the same principal residence to the extent of any remaining maximum limitation amount, and each spouse is treated as excluding one-half of the gain from a sale or exchange to which section 121(b)(2)(A) and § 1.121-2(a)(3)(i)(relating to the limitation for certain joint returns) apply.
(B) Sale or exchange of more than one principal residence in 2-year period. For purposes of applying section 121(b)(3) (restricting the application of section 121 to only 1 sale or exchange every 2 years), each sale or exchange of a partial interest is disregarded with respect to other sales or exchanges of partial interests in the same principal residence, but is taken into account as of the date of the sale or exchange in applying section 121(b)(3) to that sale or exchange and the sale or exchange of any other principal residence.
(2) Sales or exchanges of remainder interests—(i) In general. A taxpayer may elect to apply the section 121 exclusion to gain from the sale or exchange of a remainder interest in the taxpayer's principal residence.
(ii) Limitations—(A) Sale or exchange of any other interest. If a taxpayer elects to exclude gain from the sale or exchange of a remainder interest in the taxpayer's principal residence, the section 121 exclusion will not apply to a sale or exchange of any other interest in the residence that is sold or exchanged separately.
(B) Sales or exchanges to related parties. This paragraph (e)(2) will not apply to a sale or exchange to any person that bears a relationship to the taxpayer that is described in section 267(b) or 707(b).
(iii) Election. The taxpayer makes the election under this paragraph (e)(2) by filing a return for the taxable year of the sale or exchange that does not include the gain from the sale or exchange of the remainder interest in the taxpayer's gross income. A taxpayer may make or revoke the election at any time before the expiration of a 3-year period beginning on the last date prescribed by law (determined without regard to extensions) for the filing of the return for the taxable year in which the sale or exchange occurred.
(3) Example. The provisions of this paragraph (e) are illustrated by the following example:
(f) No exclusion for expatriates. The section 121 exclusion will not apply to any sale or exchange by an individual if the provisions of section 877(a) (relating to the treatment of expatriates) applies to the individual.
(g) Election to have section not apply. A taxpayer may elect to have the section 121 exclusion not apply to a sale or exchange of property. The taxpayer makes the election by filing a return for the taxable year of the sale or exchange that includes the gain from the sale or exchange of the taxpayer's principal residence in the taxpayer's gross income. A taxpayer may make an election under this paragraph (g) to have section 121 not apply (or revoke an election to have section 121 not apply) at any time before the expiration of a 3-year period beginning on the last date prescribed by law (determined without regard to extensions) for the filing of the return for the taxable year in which the sale or exchange occurred.
(h) Residences acquired in rollovers under section 1034. If a taxpayer acquires property in a transaction that qualifies under section 1034 (section 1034 property) for the nonrecognition of gain realized on the sale or exchange of another property and later sells or exchanges such property, in determining the period of the taxpayer's ownership and use of the property under section 121 the taxpayer may include the periods that the taxpayer owned and used the section 1034 property as the taxpayer's principal residence (and each prior residence taken into account under section 1223(7) in determining the holding period of the section 1034 property).
(i) [Reserved]
(j) Election to apply regulations retroactively. Taxpayers who would otherwise qualify under §§ 1.121-1 through 1.121-4 to exclude gain from a sale or exchange of a principal residence before December 24, 2002 but on or after May 7, 1997, may elect to apply §§ 1.121-1 through 1.121-4 for any years for which the period of limitation under section 6511 has not expired. The taxpayer makes the election under this paragraph (j) by filing a return for the taxable year of the sale or exchange that does not include the gain from the sale or exchange of the taxpayer's principal residence in the taxpayer's gross income. Taxpayers who have filed a return for the taxable year of the sale or exchange may elect to apply the provisions of these regulations for any years for which the period of limitation under section 6511 has not expired by filing an amended return.
(k) Audit protection. The Internal Revenue Service will not challenge a taxpayer's position that a sale or exchange of a principal residence occurring before December 24, 2002 but on or after May 7, 1997, qualifies for the section 121 exclusion if the taxpayer has made a reasonable, good faith effort to comply with the requirements of section 121. Compliance with the provisions of the regulations project under section 121 (REG-105235-99 (2000-2 C.B. 447)) generally will be considered a reasonable, good faith effort to comply with the requirements of section 121.
(l) Effective date. This section is applicable for sales and exchanges on or after December 24, 2002. For rules on electing to apply the provisions retroactively, see paragraph (j) of this section.
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Treas. Reg. §1.121-4(a)Property of deceased spouse—(1) In general.
Property of deceased spouse—(1) In general. For purposes of satisfying the ownership and use requirements of section 121, a taxpayer is treated as owning and using property as the taxpayer's principal residence during any period that the taxpayer's deceased spouse owned and used the property as a principal residence before death if—
125 Citing Cases
Pesarik fails to demonstrate that the sale of the Hull Property qualifies for the section 121 exclusion.
Section 163(h)(1), however, provides that in the case of a taxpayer other than a corporation (i.e., an individual) no deduction is allowed for personal interest paid or accrued during the taxable year.
A taxpayer’s qualified residence is his principal residence (within the meaning of section 121) and one other residence of the taxpayer which is selected by the taxpayer and is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).
§ 121(b)(2)(B). Thus, under this provision, some exclusion may be claimed if either spouse (not necessarily the taxpayer who is the owner) used the property as a principal residence. For a taxpayer who qualifies under section 121(a) (because she satisfies the ownership and use requirements) but has some “periods of nonqualified use” of the property, section 121(b)(5) provides for computing the exclusion by allocating gain to “periods of nonqualified use” (which gain is then not excluded). Under
where it is celebrated. (Van Voorhis v. Brintnall, 86 N.Y. 18, 24; Thorp v. Thorp, 90 N.Y. 602, 605-606; Moore v. Hegeman, 92 N.Y. 521, 524; Medway v. Needham, 16 Mass. 157, 159-160; Fensterwald v. Burk, 129 Md. 131; Restatement, Conflict of Laws, §§ 121. 131, 132; Story on Conflict of Laws [7th ed.], § 113; 2 Beale. Conflict of Laws, pp. 669-670; 1 Bishop on Marriage, Divorce and Separation, § 856.) See also Matter of Mott v. Duncan Petroleum Trans., 51 N.Y.2d 289, 292-293 (1980) (applying the
For this purpose, "qualified residence" means: (I) the principal residence (within the meaning ofsection 121) ofthe taxpayer, and (II) 1 other residence ofthe taxpayerwhich is selected by the taxpayer for purposes ofthis subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)).
We overrule respondent's objection.
ce and the six properties in Florida as long-term capital gains and losses as follows: Cost or Long-term Property Date Date Sales other capital gain description acquired soM p_nce b_gús Gogù 235 Broderick 5/3/96 3/4/08 $2,000,000 $889,242 $1,110,758 Sec. 121 exclusion (500,000) Subtotal 610,758 Condo-Axis at Brickell 2/7/05 6/12/08 -0- 65,380 (65,380) 2400 RockyPoint 4/15/05 6/6/08 1,127,500 1,844,116 (716,616) 50 Biscayne Unit 3309 1/25/05 4/1/08 30,443 40,380 (9,937) 50 Biscayne Unit 4002 1/25
ebtedness" refers to "acquisition indebtedness (within the meaning ofsection 163(h)(3)(B) * * * with respect to theprincipal residence ofthe taxpayer." Sec. 108(h)(2) (emphasis added). And "'principal residence' has the same meaning as when used in section 121." Sec. 108(h)(5). The Commissioner doesn't dispute that the loan was "acquisition indebtedness," but he does question whether the townhouse was the Simonsens' "principal residence." Ifhe's right, then it wouldn't matter whether the Simonse
Respondent also concedes that petitioner is entitled under section 121 to exclude from gross income $250,000 ofthe capital gain that he realized from the sale ofpetitioner's residence, as determined under section 1001(a) and (b).
Section 25C provides that "[i]n the case ofan individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of: (1) 10 percent ofthe amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year
at 819, provided for a deduction from gross income as follows: (2) Non-trade or Non-business Expenses.--In the case ofan individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection ofincome, or for the management, conservation, or maintenance ofproperty held for th
ser, and (3) the taxpayer actually relied in good faith on the adviser'sjudgment." See id. at 99; see also Charlotte's Office Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 n.8 (9th Cir. 2005) (quoting with approval the above three-prong test), § 121 T.C. 89 (2003). In addition, the advice must not be based on unreasonable factual or legal assumptions (including assumptions as to future events) and must not unreasonably rely on the representations, - 38 - [*38] statements, findings, or agre
1 (July 1, 2010), this court ruled that the teardown ofa former principle [sic] residence and rebuilding the house without occupying it would disqualify the home from the exclusion ofgain under Section 121 as a principle [sic] residence.
ection 167(h), which generally requires "We observethatbefore 1997 at leasttwo otherbills had been introducedthatwould have allowed taxpayers to electan immediatededuction: the Domestic Oil and Gas Productionand PreservationAct, S. 451, 104th Cong., sec. 121 (introduced Feb. 16, 1995), and S. 34, 104th Cong., sec. 1 (introduced Jan. 4, 1995). Senator John Breaux,who introducedS. 34, stated thatthe bill "would allow oil and gas producers that incurgeologicaland geophysical [G&G] costs to expenset
For purposes ofthe FTHBC, section 36(c)(2) provides that the term "principal residence" has the same meaning as in section 121.
ser, and (3) the taxpayer actually relied in good faith on the adviser'sjudgment." See id. at 99; see also Charlotte's Office Boutique, Inc. v. Commissioner, 425 F.3d 1203, 1212 n.8 (9th Cir. 2005) (quoting with approval the above three-prong test), § 121 T.C. 89 (2003). In addition, the advice must not be based on unreasonable factual or legal assumptions (including assumptions as to future events) and must not unreasonably rely on the representations, - 38 - [*38] statements, findings, or agre
We conclude that under section 121 petitioners' Diamond Bar house was not petitioners' principal residence for two ofthe five years preceding its sale. We accordingly sustain respondent's determination that the section 121 exclusion does not apply.
We conclude that under section 121 petitioners' Diamond Bar house was not petitioners' principal residence for two ofthe five years preceding its sale. We accordingly sustain respondent's determination that the section 121 exclusion does not apply.
Section 121 Section 121 provides for the exclusion from gross income ofup to $250,000 ofgain from the sale or exchange ofproperty ifthe propertywas owned and used by a taxpayer as the taxpayer's principal residence for periods aggregating two - 10 - [*10] years or more during the five-year period preceding the sale or exchange.
79, 84 (1992); see also Rule 142(a).
Agent Chan treated this as nontaxable gain from the sale ofa principal residence under section 121 and thus subtracted it when computing Frank's AGI for that year.
Principal Residences.-If-- (1) subsection (a) applies to a reacquisition ofreal property with respect to the sale ofwhich gain was not - 12 - recognized under section 121 (relating to gain on sale of principal residence); and (2) within 1 year after the date ofthe reacquisition of such property by the seller, such property is resold by him, then, under regulations prescribed by the Secretary, subsections (b), (c), and (d) ofthis section shall not apply to the reacquisition ofsuch property and,
Agent Chan treated this as nontaxable gain from the sale ofa principal residence under section 121 and thus subtracted it when computing Frank's AGI for that year.
erest in a principal residence after April 17, 2005, and before April 18, 2008. See Foster v. Commissioner, 138 T.C. 51, 52-53 (2012). For purposes ofthe FTHBC, section 36(c)(2) provides that the term "principal residence" has the same meaning as in section 121. In general, whether property is used by a taxpayer as the taxpayer's residence depends upon all the facts and circumstances. Sec. 1.121-1(b), Income - 6 - [*6] Tax Regs. A property used by a taxpayer as the taxpayer's residence may inclu
7491(a)(2); see also Rule 142(a)(2); Higbee v.
- 29 - Petitioners' reliance on section 121 is misplaced. Section 1.1001-2(a)(2), Income Tax Regs., provides: "[t]he amount realized on a sale * * * ofproperty that secures a recourse liability does not include amounts that are * * * income from the discharge ofindebtedness under section 61(a)(12)." We have already found that the $146,850 reflected on the Form 1099-C from Wells Fargo is from discharge ofindebtedness in respect ofa recourse liability; consequently, this amount is not included in
with his son, an attorney, acting as an intermediarywith regard to the transactions. Respondent rejected petitioner's claim¹ and determined that petitioner had taxable gain from the sale ofproperty A as follows: Sale price $2,250,000 Basis -488,000 Sec. 121 exclusion -250,000 Taxable gain 1,512,000 In addition to his claim that the gain from the sale ofpropertyA should be deferred pursuant to section 1031, petitioner asserts thatthe gain from any sale is less than the amount determined by respon
e" so long as the debt does not exceedthe fair market value ofthe residence reduced by the qualified acquisition indebtedness. Sec. 163(h)(3)(C). As relevant here, "qualified residence" means the taxpayer's "principal residence" within the meaning ofsection 121. Sec. 163(h)(4)(A)(i)(I). Section 121 does not defme the - 15 - [*15] term "principal residence" but, subject to various limitations, allows for the exclusion ofgain on the sale or exchange ofproperty "owned and used by the taxpayer as th
Agent Chan treated this as nontaxable gain from the sale ofa principal residence under section 121 and thus subtracted it when computing Frank's AGI for that year.
e point, we address a more fundamental question, that is, whetherthe trailer fits within the definition ofa "principal residence" as used in section 36. For purposes ofsection 36, the term "principal residence" has the same meaning as when used in section 121. See sec. 36(c)(2). For purposes ofsection 121, principal residence is defined in section 1.121-1(b)(2), Income Tax Regs., which provides, as relevant here, that the taxpayer's principal residence is the property the taxpayeruses during mos
However, she did not testify or provide other evidence to show that she met the requirements under section 121 to exclude the gain from the sale ofthat property from her income.
However, she did not testify or provide other evidence to show that she met the requirements under section 121 to exclude the gain from the sale ofthat property from her income.
ar 2009. The sole issue in this case is whether petitioner underreported his long-term capital gains as a result of his failure to recognize gain pursuant to section 1038 on the reacquisition of property where gain had been previously excluded under section 121. Background All of the facts in this case, which the parties submitted under Rule 122, have been stipulated by the parties and are so found except as stated below. Petitioner resided in Delano, Minnesota, at the time he filed his petition
7491(a)(2); see also Rule 142(a)(2).
We have previously held that "principal residence", which is undefined in section 36 or section 121, means the chiefor primary place where a person lives or the dwelling in which a person resides.
Accordingly, any realized gain attributable to the exchange ofthe Lakeviewproperty as a distinct, discrete part of petitioners' overall like-kind exchange is excluded pursuant to section 121.
36(c)(2) provides that the term "principal residence" has the same meaning as in sec.
After petitioner filed a late return for the 2006 year, his return was selected for audit; and, ultimately, respondent issued a notice ofdeficiency in which the sale proceeds were adjusted (reduced) by allowance ofadditional basis and an exclusion under section 121.2 Finally, losses were applied against the taxable gain from the sale ofthe residence, with a small adjustment, to arrive at net unreported capital gain of$866,330.50.
A first-time homebuyer is an individual who has not had a present ownership interest in a principal residence, as defined in section 121, during the two-yearperiod ending on the date of acquisition ofanother principal residence.
erest in a principal residence-after April 17, 2005, and before April 18, 2008. See Foster v. Commissioner,. 138 T.C. 51, 52-53 (2012). For purposes ofthe FTHBC, section 36(c)(2) provides that the term "principal residence" has the same meaningas in section 121. 'Whether a taxpayeruses a property as his or her principal residence depends upon all the facts and circumstances. See sec..1.121-1(b)(2), Income Tax Regs. Ordinarily, the taxpayer's principal residence is the property the taxpayeruses d
Congress repealed section 1034 in 1997 and amended section 121 at the same time to allow all taxpayers to exclude from income up to $250,000 ($500,000 fortaxpayers filingjoint returns) ofgain from the sale ofa principal (continued...) - 6 - [*6] over $3 million ofordinary income (but no capital gain) on its corporate return for that year.3 The Commissiorer began an audit ofGaggero's returns for se
We have previously held that "principal residence," which is undefined in section 36 or section 121,.means the chiefor primary place where a person lives or the dwelling in which a person resides. Gates v. Commissioner, 135 T.C. at 7. Either definition is incompatible with the notion that a business entity has a principal residence. Rather, a corporation has a principal place of business. See Talmage v. Commissioner, T.C. Memo. 2008-34 (contrasting the "vocational" nature ofa principal place ofb
1997-43; see also Catalano v.
On the Schedule E relating to the Evergreen Park property, which was attachedto their 2006 tax return, petitioners reported realized gain and asserted that the gain was not taxable under section 121.
ive property, but he contends that he resided with his parents at their home on Brandy Run Road and that he did not own that property. For purposes ofthe FTHBC, section 36(c)(2) provides that the term "principal residence" has the same meaning as in section 121. Whether a taxpayer uses a property as his principal residence depends upon all the facts and - 8 - circumstances. See sec. 1.121-1(b)(2), Income Tax Regs. Ordinarily, the taxpayer's principal residence is the propertythe taxpayeruses dur
He points to section 121's home-sale exclusion,i and reads Dobra as excluding foster care payments from income only ifthe taxpayers provide care in their principal home.2 i Section 121 excludes gain from the sale ofa principal residence.
He points to section 121’s home-sale exclusion, and reads Dobra as excluding foster care payments from income only if the taxpayers provide care in their principal home.
We have previously held that “principal residence,” which is undefined in section 36 or section 121, means the chief or primary place where a person lives or the dwelling in which a person resides.
After respondent's concession that petitioner was entitled to the section 121 exclusion of $250,000, capital gain of $356,515 remains at issue.
Consequently, section 121 requires a retrospective analysis, asking whether a taxpayer has occupied a primary residence for 2 of the previous 5 years.
Section 36(c) (2) provides that the term "principal residence" has the same meaning as that used in section 121.
80: Your Committee's bill provides that social security benefits potentially subject to tax will include any workmen's compensation whose receipt caused a reduction in social security disability benefits.
reased amounts reflected in this opinion as respondent was unaware, at the time he issued the deficiency notice, that Dr. Moragne had sold his principal residence during 2004 and had received net taxable proceeds exceeding the exclusion amount under sec. 121. SERVED Dec 27 2011 - 2 - addition to tax under section 6651(a) (1)2 for filing a delinquent return (late filing additions), a $37,006.25 addition to tax under section 6651(a) (2) for failing to pay the tax timely (late payment additions) an
We need not decide this issue, however, because petitioners' income from the sale of the -permanent easement regarding the residential portion of the property is exempt under section 121 up to $500,000. Section 121 applies to the sale of the residential portion of the permanent easement to Polk County because petitioners sold the rest of the property to the Mikels within two years of their sale to Polk County. See sec. 1.121-1(b) (3), Income Tax Regs. Accordingly, petitioners' income from their
Section 163(h) (1), however, provides that, in the case of a taxpayer other than a corporation, no deduction is allowed for personal interest.
exclude the g in from the sale of Walker Street under section 121, exclusion of ga n from sale of a principal residence.
ouse) having no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence. Section 36(c)(2) provides that the term “principal residence” has the same meaning as used in section 121. Respondent contends that petitioner fails to qualify for the FTHBC for two reasons. First, respondent argues that petitioner took possession of the Rice house under contract for deed and has not acquired legal or equitable title of the p
ng brief begins with several concessions of determinations made in the notices of deficiency . It concedes that (cid:127) the amount of(cid:127)the capital gain received from the sale of the Wolfgrams! home in 2.004 was excludable 'from income under section 121 . . (cid:127) Wolfgram should be permitted to elect joint filing status, and (cid:127) the estimated-tax penalty for the 2004 tax,year and the failure-to-pay penalties for both the 2004 and 2005 tax years should not be imposed . The IRS a
After a concession by respondent,2 the sole issue for decision is whether petitioners are entitled to exclude from gross income a gain from the sale of a residence pursuant to section 121.
the sale-resulted gain that is taxable to them- unless some .part of the gain is excluded under section 121(a) . Accordingly, we hold that respondent's determination-is entitled to the presumption,o f correctness .and that . petitioners have the burden of proof . 10Petitioners .do not contend that sec.. 7491(a) shifts the burden of proof to respondent, and petitioners have no t established that the requirements of .sec . 74"91(a) have beenmet . Moreover, . because there areno factual issues in-d
- 3 - Pursuant to section 121, petitioner excluded from income $250,000 of the .gain associated with the sale .
ng brief begins with several concessions of determinations made in the notices of deficiency . It concedes that (cid:127) the amount of(cid:127)the capital gain received from the sale of the Wolfgrams! home in 2.004 was excludable 'from income under section 121 . . (cid:127) Wolfgram should be permitted to elect joint filing status, and (cid:127) the estimated-tax penalty for the 2004 tax,year and the failure-to-pay penalties for both the 2004 and 2005 tax years should not be imposed . The IRS a
rom the sale of the Summit Road property. Petitioners subsequently agreed that $91,406 of the gain should have been included in their gross income for 2000, but they asserted that the remaining gain of $500,000 was excludable from their income under section 121. On September 9, 2005, respondent mailed petitioners a notice of deficiency for 2000 that increased petitioners’ income by $500,000 and explained that petitioners had failed to establish that any of the gain on the sale of the Summit Road
qualifies for the exclusion of gain from the sale-of a princ Jpal Ii residence under section 121 because he .did not show that,he awne d and used the property'as his principal residence for ,2 or mo :e years during the 5-year period preceding the sale .
In 2004 petitioners claimed an exclusion of capital gains under section 121 for the sale of their home in .The Dallels.
Petitioners reported no gain on the sale of the South Dakota property because the amount realized was not taxable pursuant to section 121 .
ERV ' DEC 19 2007 -2- After concessions,2 the issues for decision are : (1) Whether petitioners may exclude the gain on the sale of their Berlin home under section 121 ; (2) whether petitioners may also exclude the gain on the sale of the South Point Road lot under section 121 ; and (3) whether petitioners are liable for a penalty under section 6662(a) .
Section 86(d)(3) clearly provides that such offsets are Social Security benefits for purposes of determining gross income: if * * * any social security benefit is reduced by reason of the receipt of a benefit under a workmen’s compensation act, the term “social security benefit” includes that portion of such benefit received under the w
80: Your Committee’s bill provides that social security benefits potentially subject to tax will include any workmen’s compensation whose receipt caused a reduction in social security disability benefits.
819, amended the Internal Revenue Code in response to Higgins and to give relief to “Higgins-type” taxpayers. See H. Rept. 2333, 77th - 30 - Cong., 2d Sess. (1942), 1942-2 C.B. 372. In Whipple v. Commissioner, 373 U.S. 193, 200 (1963), the Supreme Court explained: section 23(a) [the predecessor of section 162(a)] was amended not
121 provides a taxpayer, who attained the age of 55, a one-time exclusion of gain up to $125,000 from the sale of a principal residence.
Although neither petitioner nor Apostle was eligible to claim the one-time exclusion of $125,000 from the gain on the sale of the New York apartment under section 121, this exclusion was claimed on Form 2119.
121.051(1)(a) (West 2002). - 3 - includable in the taxpayer’s gross income for such taxable year. See sec. 219(b)(1). In addition, the amount of the deduction is limited where the taxpayer was, for any part of the taxable year, an "active participant" in a retirement plan qualified under section 401(a)2 or a plan established for its employees
Furthermore, prior to amendment by section 121 of the Tax Reform Act of 1986, Pub.
Section 121 of the bills (H.R. 4333 and S. 2238) provided that these amendments “shall take effect as if included in the provision of the Reform Act to which such amendment relates.” On April 6, 1988, the staff of the Joint Committee on Taxation released its Description of the Technical Corrections Act of 1988 (H.R. 4333 and S. 2238) (JCS-10-88), M
ale; and (3) purchased a new main home on July 18, 1997, at a cost of $480,536. Petitioners completed part II of the Form 2119 electing the one-time exclusion of $125,000 of gain on the sale of a principal residence for people age 55 or older under section 121. Petitioners also completed part III of the Form 2119 deferring recognition of the remaining $383,285 of gain (i.e., $508,285 minus $125,000) under section 1034. On March 20, 2001, respondent issued to petitioners a notice of deficiency fo
Section 121 of the bills (H.R. 4333 and S. 2238) provided that these amendments “shall take effect as if included in the provision of the Reform Act to which such amendment relates.” On April 6, 1988, the staff of the Joint Committee on Taxation released its Description of the Technical Corrections Act of 1988 (H.R. 4333 and S. 2238) (JCS-10-88), M
Respondent concedes that the gain from the sale of the Cumberland house was properly excluded from petitioners’ gross income for 1997 pursuant to section 121.
121(a).1 Petitioner claims that the New Jersey residence was his principal residence from the time that he and his wife purchased it until the date in 1996 when he sold it. Relying upon section 121(a), petitioner argues that any gain realized from the sale of that house is therefore excludable from his income. According to respondent, the exclusion provided in section 121(a) does not apply to the sale of the New Jersey residence because that house was not petitioner’s principal residence for the
s follows: 2Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective for sales and exchanges after May 6, 1997. The sec. 1034 rollover provision was replaced by an expanded and revised sec. 121. - 4 - SEC. 1034. ROLLOVER OF GAIN ON SALE OF PRINCIPAL RESIDENCE. (a) Nonrecognition of Gain.--If property (in this section called “old residence”) used by the taxpayer as his principal residence is sold by him and, within a period beginnin
ioner to reinvest in a new residence and thereby qualify for gain 2 Although sec. 1034 was repealed by sec. 312(b) of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 839, and the rollover provision was replaced by an expanded and revised sec. 121, sec. 1034 was in effect for the year at issue herein. - 7 - deferral was December 10, 1995. Respondent’s determination resulted in a reduction of petitioner’s capital losses in 1993, 1994, and 1995. Petitioner contends that he purchased the
tal gains. 3Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective for sales and exchanges after May 6, 1997. The sec. 1034 rollover provision was replaced by an expanded and revised sec. 121. - 5 - mortgage of the Compton residence to purchase the Lee’s Summit residence in order to avoid gain recognition in anticipation of selling the Compton residence. Second, she purchased the new residence within several months of the time pe
Claiming the exclusion under section 121 in the maximum amount of $125,000, she included in income only $20,738 of the gain on the sale.
5 E.g., according to the notice of deficiency, the gain realized from the sale of the condominium is includable in petitioner’s 1993 income because he has “not established the requirements of section 121 or section 1034 * * * have been met”.
The section 1034 rollover provision was replaced by a revised and expanded section 121.) We agree with respondent that the $65,000 received by petitioner in condemnation of her residence is not a payment of a type exempted from taxation by the Relocation Act.
ed no supporting receipts or documentation. Thus, the gain that was realized by the bankruptcy estate was equal to $3,170,000. See sec. 1001(a). Petitioners argue that the estate should be allowed to use the $125,000 one-time exclusion of gain under section 121. However, we need not address the issue of whether the one-time exclusion is available for use by a bankruptcy estate because an election was not made by the estate under section 121(c). An election to use the one-time exclusion must be m
80. The House report states in relevant part: - 6 - social security benefits potentially subject to tax will include any workmen’s compensation whose receipt caused a reduction in social security disability benefits. For example, if an individual were entitled to $10,000 of social security disability benefits but received only $
The section 1034 rollover provision was replaced by a revised and expanded section 121.) We agree with respondent that the $65,000 received by petitioner in condemnation of her residence is not a payment of a type exempted from taxation by the Relocation Act.
The section 1034 rollover provision was replaced by an expanded and revised section 121.) General Interpretation As a threshold matter, section 1034 specifies that gain must be reinvested in property “purchased and used by the taxpayer as his principal residence” in order for nonrecognition treatment to be available.
ent determined that petitioner had a basis in the CPW shares of $428,340, composed of the following amounts: One-half of the original cost basis ($22,000), one-half of the date of death value ($350,000), $43,200 of commissions, and $13,140 of transfer taxes.3 From the $720,000 selling price, respondent subtracted the $428,340 basis and allowed the section 121 one- time exclusion of $125,000 of gain from the sale of a principal residence to determine a gain on sale of $166,660.
d an addition to tax of $6,974 under section 6651(a)(1) for failure to file timely. After concessions, the issues for decision are: -2- 1. Whether petitioners may exclude $125,000 of the gain from the sale of their principal residence in 1992 under section 121. We hold that they may not. 2. Whether petitioners are liable for the addition to tax under section 6651(a)(1) for failure to file timely their 1992 income tax return. We hold that they are. Unless otherwise indicated, section references a
s of principal residences after May 6, 1997. (The repeal of sec. 1034 was part of the capital gains relief provided to individual taxpayers by the Taxpayer Relief Act of 1997.) The sec. 1034 rollover provision was replaced by an expanded and revised sec. 121, which generally provides for the nonrecognition of up to $500,000 of gain realized from the sale of a principal residence by married taxpayers filing a joint return, and up to $250,000 of gain realized by all other individual taxpayers, if
From the $720,000 selling price, respondent subtracted the $428,340 basis and allowed the section 121 one-time exclusion of $125,000 of gain from the sale of a principal residence to determine a gain on sale of $166,660.
80. The House report states in relevant part: Your Committee's bill provides that social security benefits potentially subject to tax will include any workmen's compensation whose receipt caused a reduction in social security disability benefits. For example, if an individual were entitled to $10,000 of social security disability
Section 121 permits taxpayers over the age of 55 to exclude from gross income gain from the sale of property (not to exceed $125,000) which has been their principal residence for 3 of the 5 years prior to sale. Sec. 121(a) and (b). While petitioners are 4 Sec. 1034(a) provides, in pertinent part, as follows: (a) Nonrecognition of Gain.--If property
Gibbons (petitioner) is entitled to additional miscellaneous itemized deductions in 1988; (3) whether petitioner received constructive dividends or wages from Allied's paying his personal expenses in 1988 and 1989; (4) whether petitioner can exclude gain under section 121 and defer gain under section 1034 in 1989; and (5) whether petitioner is liable for the additions to tax and penalty as determined by respondent.