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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