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residence exceeds the cost of property purchased and used as a
new principal residence within 2 years before or after the date
of sale. Moreover, where part of the new residence purchased is
used as the taxpayer's principal residence and part is used for
business purposes, only the portion of the cost allocable to the
residential use is entitled to section 1034(a) nonrecognition.
Beckwith v. Commissioner, T.C. Memo. 1964-254; Grace v.
Commissioner, T.C. Memo. 1961-252; sec. 1.1034-1(c)(3)(ii),
Income Tax Regs. Thus, pursuant to section 1034(a) and the
regulations thereunder, only the portion of the Clayton property
used by petitioner as his principal residence during the 2-year
period following the sale of the Livermore property may be
included in the cost of purchasing such residence. Whether or
not property is used by a taxpayer as his residence depends upon
all the facts and circumstances in each case, including the good
faith of the taxpayer. Thomas v. Commissioner, 92 T.C. 206, 243
(1989); sec. 1.1034-1(c)(3)(i), Income Tax Regs.
8(...continued)
(A) for work performed during the 90-day
period ending on the day on which the contract to
sell the old residence is entered into;
(B) which are paid on or before the 30th day
after the date of the sale of the old residence;
and
(C) which are--
(i) not allowable as deductions in
computing taxable income under section 63
(defining taxable income), and
(ii) not taken into account in computing
the amount realized from the sale of the old
residence.
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