Douglass H. and Suzanne M. Bartley - Page 14

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          change to section 1034 (other than its repeal) has been the                 
          extension of the period for acquisition or construction of a new            
          residence from 1 year to 18 months by the Tax Reduction Act of              
          1975, Pub. L. 94-12, sec. 207(a), 89 Stat. 32, and then to 2 years          
          by the Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec.               
          122(b), 95 Stat. 197.                                                       
               It is clear from the legislative history that Congress viewed          
          the deferral of capital gains tax as a means to alleviate hardships         
          for growing families purchasing a new home and for taxpayers                
          changing employment and thus needing to purchase a new residence.           
          Because a rational basis exists for the gain deferral under section         
          1034, this provision is constitutional and does not violate                 
          petitioners' equal protection rights.                                       
               In repealing section 1034 in the Taxpayer Relief Act of 1997,          
          sec. 312(b), it appears that Congress addressed petitioners'                
          concern that the "poor" were penalized through section 1034:                
                         To postpone the entire capital gain from                     
                    the sale of a principal residence, the                            
                    purchase price of a new home must be greater                      
                    than the sales price of the old home.  This                       
                    provision of present law encourages some                          
                    taxpayers to purchase larger and more                             
                    expensive houses than they otherwise would in                     
                    order to avoid tax liability, particularly                        
                    those who move from areas where housing costs                     
                    are high to lower-cost areas.  This promotes                      
                    an inefficient use of taxpayer's financial                        
          H. Rept. 105-148, at 761-762 (1997).  Thus, in 1997, Congress               
          repealed section 1034 and revised section 121 because, among other          

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