- 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., definesPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
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