- 15 -
should be considered the principal one. It was this aspect that
allowed respondent to make a presentation showing the potential
for petitioner's failure to meet the strict requirement of
section 1034. Ultimately, however, petitioners passed the
threshold use test, and then proceeded to renovate necessitating
their use of the townhouse to allay the inconvenience and
difficulties encountered in their renovation. We hold that the
Fairway residence was used as petitioner's principal residence
prior to the 2-year limit on June 21, 1990.
We also note that petitioners, although well aware of the 2-
year limitation and even though they purchased what was to be
their permanent replacement residence 7 months prior to the 2-
year deadline, allowed matters to slip to the point where they
risked losing the benefit of any rollover whatsoever. The timing
in this case placed petitioners in a precarious position where
they attempted to make it appear that renovations were commenced
and/or completed, when they were not. By waiting until the very
end of the 2-year period, petitioners risked losing any section
1034 benefit.
Respondent, in the event that we decide that petitioners met
the threshold test of section 1034 regarding the Fairway
residence, alternatively argues that petitioners are not entitled
to treat $112,470 of the improvements made to the Fairway
residence as part of the cost of that residence for purposes of
section 1034. Section 1.1034-1(b)(7), Income Tax Regs., defines
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