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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
resources.
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repealed section 1034 and revised section 121 because, among other
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