Clifford F. Asher - Page 9

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          the entire gain will be deferred.  If the cost of the new                   
          residence is less than the adjusted sales price of the old                  
          residence, gain will be recognized to the extent of the                     
          difference.  Sec. 1034-1(a), Income Tax Regs.  The deferral of              
          the gain is accomplished by reducing the basis of the new                   
          residence by the amount of gain not recognized on the sale of the           
          old residence.  Sec. 1034(e).                                               
               The 4-year replacement period begins 2 years before the date           
          of the sale of the old residence and ends 2 years after such                
          date.  Sec. 1034(a).  If, however, during the 4-year replacement            
          period, the taxpayer purchases more than one residence that is              
          used by him as his principal residence at some time within 2                
          years after the date of the sale of the old residence, only the             
          last of such residences is treated as the new residence.  Sec.              
          1034(c)(4).                                                                 
               Petitioner contends that the Castro Valley house was his old           
          principal residence and the condominium was his new principal               
          residence.  Petitioner concludes, that since he purchased and               
          used the condominium as his new principal residence within 2-               
          years prior to the sale of the Castro Valley house, he is                   
          required by section 1034(a) to defer recognition of the gain on             
          the sale of the house.                                                      
               Respondent argues that section 1034(a) does not apply                  
          because (1) the Castro Valley house was not petitioner's                    





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