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(3) any money paid or other property (measured by its fair market
value) transferred in connection with the reacquisition.6
Section 1038 governs the Federal income tax treatment of all
reacquisitions described therein, even where “the mandatory
language of section 1038(b) works a hardship on a taxpayer”.
Greene v. Commissioner, 76 T.C. 1018, 1026 (1981) (relief
available to such taxpayers through increases to basis under
section 1038(c) that offset gain reported upon reacquisition);
sec. 1.1038-1(a), Income Tax Regs. Section 1038 applies to such
reacquisitions even when substantial improvements have been made
6 Sec. 1038(b)(2) provides:
Limitation.--The amount of gain determined under
paragraph (1) resulting from a reacquisition during any
taxable year beginning after the date of the
enactment of this section shall not exceed the amount
by which the price at which the real property was sold
exceeded its adjusted basis, reduced by the sum of--
(A) the amount of the gain on the sale of
such property returned as income for periods prior
to the reacquisition of such property, and
(B) the amount of money and the fair market
value of other property (other than obligations of
the purchaser received with respect to the sale of
such property) paid or transferred by the seller
in connection with the reacquisition of such
property.
For purposes of this paragraph, the price at which real
property is sold is the gross sales price reduced by
the selling commissions, legal fees, and other expenses
incident to the sale of such property which are
properly taken into account in determining gain or loss
on such sale.
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Last modified: May 25, 2011