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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3 Sec. 1034 was repealed by sec. 312(b) of the Taxpayer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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