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Neither the mortgage nor the promissory note held by the lending
institution was changed to reflect petitioner husband's joint
liability for the mortgage on the King of Prussia property.
Renovations and restorations were made to the King of
Prussia property in the total amount of $229,472 within the 2-
year replacement period permitted by section 1034(a) before and
after the date of the sale of the Wyndmoor property. The
renovation and restoration payments for the King of Prussia
property qualify as payments made for the partial reconstruction
of a replacement residence. All renovation and restoration
payments for the King of Prussia property were paid from a joint
checking account in the names of petitioners, or from a checking
account in the name of petitioner wife. A substantial portion of
the renovations and restorations of the King of Prussia property
was made before petitioners had executed the written agreement
between themselves on July 24, 1989.
Discussion
Under the general rule of section 1001(c),3 taxpayers are
ordinarily required to recognize their entire gain on the sale of
property. Secs. 61, 1001. However, section 1034, captioned
3SEC. 1001. DETERMINATION OF AMOUNT OF AND RECOGNITION OF
GAIN OR LOSS.
(c) Recognition of Gain or Loss.--Except as
otherwise provided in this subtitle [subtitle A,
relating to income taxes], the entire amount of the
gain or loss, determined under this section, on the
sale or exchange of property shall be recognized.
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