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The agent concluded that petitioner lived in the office
building because petitioner used the office address on his income
tax returns and received most of his mail at the office building
and because of the 4-hour drive from the condominium to the
office building, the presence of the cabinet and mattress with
box spring in a room in the loft during July 1994, and the
presence of the kitchen and shower in the loft.
Consistent with the revenue agent's conclusion and
adjustment to petitioner's income, respondent determined in the
notice of deficiency that petitioner received a constructive
dividend as a result of the construction of the loft in 1991.
OPINION
1. Whether the Gain Petitioner Realized on the Sale of the
Castro Valley House Is Taxable in the Year of the Sale
Generally, sections 1001 and 61 require a taxpayer to
recognize gain realized on the sale of property in the year of
the sale. Section 1034, however, requires a taxpayer to defer
recognition of gain realized on the sale of the taxpayer's
principal residence in certain circumstances. If the taxpayer
purchases and uses a new principal residence within the 4-year
replacement period, the taxpayer will recognize gain only to the
extent that the taxpayer's adjusted sales price of the old
residence exceeds the taxpayer's cost of purchasing the new
residence. Sec. 1034(a). Thus, if the cost of the new residence
equals or exceeds the adjusted sales price of the old residence,
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