§121 — Exclusion of gain from sale of principal residence

We overrule respondent's objection.

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.

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

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.

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.

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.

Consequently, section 121 requires a retrospective analysis, asking whether a taxpayer has occupied a primary residence for 2 of the previous 5 years.

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.

- 3 - Pursuant to section 121, petitioner excluded from income $250,000 of the .gain associated with the sale .

Petitioners reported no gain on the sale of the South Dakota property because the amount realized was not taxable pursuant to section 121 .

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.

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.

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

§ 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

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.

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,

- 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

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

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

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.

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

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

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

Pesarik fails to demonstrate that the sale of the Hull Property qualifies for the section 121 exclusion.

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

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) .

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

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.

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)).

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)).

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

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

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.

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.

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.

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.

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

1997-43; see also Catalano v.

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.

After respondent's concession that petitioner was entitled to the section 121 exclusion of $250,000, capital gain of $356,515 remains at issue.

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

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.

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

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

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.

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

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

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

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.

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