Michele Anthony - Page 5

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               Under sections 61(a) and 1001(c), taxpayers generally must             
          recognize in the year of sale all gain or loss realized upon the            
          sale or exchange of property.2  Section 1034(a),3 however,                  
          provides an exception under which, if certain requirements are              
          met, taxpayers defer recognition of gain when sale proceeds are             
          reinvested in a new principal residence.  The section reads in              
          pertinent part as follows:                                                  
                    SEC. 1034(a).  Nonrecognition of Gain.--If                        
               property (in this section called “old residence”) used                 
               by the taxpayer as his principal residence is sold by                  
               him and, within a period beginning 2 years before the                  
               date of such sale and ending 2 years after such date,                  
               property (in this section called “new residence”) is                   
               purchased and used by the taxpayer as his principal                    
               residence, gain (if any) from such sale shall be                       
               recognized only to the extent that the taxpayer’s                      
               adjusted sales price (as defined in subsection (b)) of                 
               the old residence exceeds the taxpayer’s cost of                       
               purchasing the new residence.                                          
          Petitioner purchased the Lee’s Summit residence on May 12, 1994,            
          but did not sell the Compton residence until September 27, 1996--           
          beyond the expiration of the section 1034(a) two-year period.               
          Petitioner urges this Court to relax the rigidity of the two-year           
          requirement for several reasons.  First, she used money from a              

          2See also secs. 1221 through 1223 for the definition of a                   
          capital asset and related terms, and sec. 1(h) for the rate of              
          tax imposed on long-term capital gains.                                     
          3Sec. 1034 was repealed by sec. 312 of the Taxpayer Relief                  
          Act of 1997, Pub. L. 105-34, 111 Stat. 836, generally effective             
          for sales and exchanges after May 6, 1997.  The sec. 1034                   
          rollover provision was replaced by an expanded and revised sec.             

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