- 7 - residence is less than the cost of the new residence. Sec. 1034(a), (c). Section 1034(b)(1) defines "adjusted sales price" as the amount realized on the sale of the old residence (selling price minus selling expenses) reduced by expenses of fixing up the residence in preparation for sale. Thus, if the cost of the new residence equals or exceeds the adjusted sale price of the old residence, the entire gain on the sale of the old residence must be deferred. (We note that section 1034 is mandatory, so that a taxpayer cannot elect to have gain recognized where the section is applicable. Sec. 1.1034-1(a), Income Tax Regs.) If the cost of the new residence is less than the adjusted sale price of the old residence, gain must be recognized to the extent the adjusted sale price of the old residence exceeds the cost of the new residence, but not greater than the amount realized on the sale. Sec. 1.1034- 1(a), Income Tax Regs. The deferral of 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 (i.e., the unrecognized gain is rolled over into a lower basis for the new residence). Sec. 1034(e). Finally, pursuant to section 1.1034-1(i)(1), Income Tax Regs., any gain recognized from the sale of the old residence is includable in gross income for the taxable year in which the gain was realized. (Section 1034 does not apply to losses; losses are recognized or not recognized without regard to the provisions of section 1034.)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011