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applying the deferred gain from the sale of the Ridgefield house
to the 2106 house. Petitioner’s 1996 Form 1040 incorrectly
reported the gain from the sale of the 2105 house on Form 4797,
Sales of Business Property. Petitioner filed Form 1040X for 1996
to remove the gain from Form 4797 and to correctly report it on
Form 2119, Sale of Your Home, and to elect to defer the gain.
Petitioner’s Form 2119 indicates that petitioner had not bought
or built a “new main home” at the time the form was completed but
that she planned to replace her home within the replacement
period. Petitioner did not file a second 1040X for 1994 to
reverse the rollover of gain that was reported on the 1040X for
1994.
The notice of deficiency is based on a determination that
the Ridgefield house was rental property and that petitioner thus
did not meet the requirements of section 1034. In the
alternative, the notice of deficiency states that gain from the
sale was not properly computed. At trial and in his trial
memorandum, respondent abandoned these arguments and asked us to
consider whether petitioner is prohibited from rolling over into
a “new residence” the gain from the second sale within 2 years of
an “old residence” when petitioner also rolled over into the “new
residence” the gain from the first sale of an “old residence”.
Respondent explained that the rollover of the first residence in
1994 was disallowed because petitioner also filed a claim for the
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Last modified: May 25, 2011