-16-
the sale of a principal residence,7 section 1034(a) provides the
following exception to that general rule:
If property (in this section called "old
residence") used by the taxpayer as his
principal residence is sold by him, and, within
a period beginning 2 years before the date of
such sale and ending 2 years after such date,
property (in this section called "new
residence") is purchased and used by the
taxpayer as his principal residence, gain (if
any) from such sale shall be recognized only to
the extent that the taxpayer's adjusted sales
price (as defined in subsection (b)) of the old
residence exceeds the taxpayer's cost of
purchasing the new residence.[8]
Mr. Edmondson converted the Seattle house (old residence) to
a rental property in 1982 and never lived in it again.9 Although
7 The Internal Revenue Code does not define the phrase
"principal residence". Nevertheless, sec. 1.1034-1(c)(3), Income
Tax Regs., provides that the determination of whether or not
property is used by the taxpayer as his principal residence
"depends upon all the facts and circumstances in each case,
including the good faith of the taxpayer." For property to be
"used by the taxpayer as his principal residence" within the
meaning of sec. 1034(a), the taxpayer ordinarily must physically
occupy and live in the dwelling. Perry v. Commissioner, F.3d
(9th Cir., July 31, 1996), affg. T.C. Memo. 1994-247;
Houlette v. Commissioner, 48 T.C. 350 (1967); Stolk v.
Commissioner, 40 T.C. 345 (1963), affd. 326 F.2d 760 (2d Cir.
1964). Certain property has been considered as the principal
residence of taxpayers despite the fact that the taxpayers were
not living there at the time of its sale, e.g., where adverse
economic conditions required the taxpayers to lease the old
residence while trying to sell it. Bolaris v. Commissioner, 776
F.2d 1428, 1431 (9th Cir. 1985), affg. in part and revg. in part
81 T.C. 840 (1983); Clapham v. Commissioner, 63 T.C. 505, 509-512
(1975).
8 Any gain that is not recognized under sec. 1034 reduces
the taxpayer's basis in the "new residence". Sec. 1034(e).
9 We note that petitioner never lived in the Seattle
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011