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gross income gains derived from dealings in property. Section
1001(c) generally requires a taxpayer to recognize the entire
amount of gain or loss realized on the sale or exchange of
property. With respect to gain realized on the sale of a prin-
cipal residence, 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 recog-
nized 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.[5]
Section 1034(c)(2) provides that, for purposes of section 1034, a
residence any part of which was constructed or reconstructed by a
taxpayer shall be treated as being purchased by that taxpayer.
The parties agree that (1) the California residence was
petitioners' "old residence" for purposes of section 1034;
(2) petitioners sold that residence on January 31, 1990; (3) they
realized a gain of $213,964 from that sale; (4) the adjusted
sales price of that residence does not exceed the total costs
incurred by petitioners in constructing the 3405 house; and
(5) they were required to use that house as their principal
5 Any gain that is not recognized under sec. 1034 reduces the
taxpayer's basis in the "new residence". Sec. 1034(e).
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Last modified: May 25, 2011