James D. Schlicher - Page 9

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               Under the general rule of section 1001(c),6 petitioner is              
          required to recognize the gain on the sale of the Livermore                 
          property.  However, pursuant to section 1034(a),7 a taxpayer may            
          defer gain from the sale of a principal residence provided such             
          gain is rolled over to a new principal residence within the time            
          prescribed in the statute.  Section 1034(a) provides that a                 
          taxpayer must recognize gain from the sale of his principal                 
          residence only to the extent the adjusted sales price8 of that              

          6     Sec. 1001(c) provides in pertinent part as follows:                   
                    (c) Recognition of Gain or Loss.--Except as                       
               otherwise provided in this subtitle, the entire amount                 
               of the gain or loss, determined under this section, on                 
               the sale or exchange of property shall be recognized.                  
          7    Sec. 1034(a) provides in pertinent part as follows:                    
                    (a) Nonrecognition of Gain.--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 recognized 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.                       
          8    Sec. 1034 (b) provides in pertinent part as follows:                   
                    (b) Adjusted Sales Price Defined --                               
                         (1) In general--For purposes of this section, the            
                    term "adjusted sales price" means the amount realized,            
                    reduced by the aggregate of the expenses for work                 
                    performed on the old residence in order to assist in              
                    its sale.                                                         
                         (2) Limitations--The reduction provided in                   
                    paragraph (1) applies only to expenses--                          

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Last modified: May 25, 2011