Douglass H. and Suzanne M. Bartley - Page 6

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          the capital gain.  Petitioners, on the other hand, advance                  
          constitutional and equitable arguments as to why the capital gain           
          is not includable in income.                                                
               a.  Section 1034                                                       
               Generally, sections 1001 and 61 require a taxpayer to                  
          recognize in the year of the sale gain realized on the sale of              
          property.  Section 1034,3 which provides an exception to this               
          general rule, allows a taxpayer, in certain circumstances, to defer         
          recognition of all gain realized on the sale of the taxpayer's              
          principal residence (referred to as the old residence) if (1) other         
          property (referred to as the new residence) is purchased and used           
          by the taxpayer as a new principal residence within the period              
          beginning 2 years before the date of the sale and ending 2 years            
          after the date, and (2) the adjusted sale price of the old                  

               3    Sec. 1034 was repealed by sec. 312(b) of the Taxpayer             
          Relief Act of 1997, Pub. L. 105-34, 111 Stat. 839, generally                
          effective for sales and exchanges of principal residences after             
          May 6, 1997.  (The repeal of sec. 1034 was part of the capital              
          gains relief provided to individual taxpayers by the Taxpayer               
          Relief Act of 1997.)  The sec. 1034 rollover provision was                  
          replaced by an expanded and revised sec. 121, which generally               
          provides for the nonrecognition of up to $500,000 of gain                   
          realized from the sale of a principal residence by married                  
          taxpayers filing a joint return, and up to $250,000 of gain                 
          realized by all other individual taxpayers, if during the 5-year            
          period ending on the date of the sale or exchange, the property             
          has been owned and used by the taxpayer as the taxpayer's                   
          principal residence for a period aggregating 2 or more years.               
          This exclusion is not predicated on the reinvestment of gain in a           
          new home.                                                                   
               References hereinafter to sec. 1034 are to that provision as           
          in effect during the year in issue, 1993.                                   

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