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SEC. 1034. ROLLOVER OF GAIN ON SALE OF PRINCIPAL
RESIDENCE.
(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.
* * * * * * *
(c) Rules for Application of Section.--For
purposes of this section:
* * * * * * *
(2) A residence any part of which was
constructed or reconstructed by the taxpayer shall
be treated as purchased by the taxpayer. In
determining the taxpayer’s cost of purchasing a
residence, there shall be included only so much of
his cost as is attributable to the acquisition,
construction, reconstruction, and improvements
made which are properly chargeable to capital
account, during the period specified in subsection
(a).
The “cost of purchasing the new residence,” within the meaning of
section 1034(a), includes only those costs under section
1034(c)(2) which are attributable to the construction of a
structure which is put into use as a residence during the
relevant time period. Elam v. Commissioner, 58 T.C. 238 (1972),
affd. 477 F.2d 1333 (6th Cir. 1973). Thus, where taxpayers
reside on a parcel of land in a temporary dwelling during the
construction of a separate structure on the same parcel intended
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Last modified: May 25, 2011