-5-
parents would cause the entire mortgage to become due. Petitioners
did not consult with an attorney with regard to any of the
aforementioned transactions. On November 5, 1993, Home Savings
informed petitioners that it had changed the name on the loan from
Mr. De Ocampo's parents to petitioners.
Petitioners informed their tax return preparer that they did
not hold title to the Montclair property. On Form 2119 (Sale of
Your Home) attached to their 1989 return, petitioners reported the
sale of the Curtis property; the selling price was shown to be
$215,000, and expenses of sale as $477. Petitioners' basis in the
property was shown as $65,736. Petitioners deferred recognition of
the gain ($148,787) pursuant to section 1034.
OPINION
Issue 1. Sale of Residence
Section 1034(a) permits deferral of gain on the sale of a
taxpayer's principal residence (old residence) if other property is
purchased and used by the taxpayer as a new principal residence
within a period beginning 2 years before the date of the sale and
ending 2 years after such date. Gain is recognized only to the
extent that the taxpayer's adjusted sales price of the old
principal residence exceeds the cost of purchasing the new
residence. Id.
Petitioners contend that they purchased the Montclair property
using Mr. De Ocampo's parents as agents, thus satisfying the
requirement of section 1034 that the taxpayer purchased a new
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