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of the gain realized upon the sale or exchange of a taxpayer’s
principal residence but rather acted as a means for tax deferral.
In particular, a taxpayer seeking to defer recognition of gain
under section 112(n) was required to reduce his basis in the new
residence by an amount equal to the gain not recognized on the
sale or exchange of the old residence.
Several years after the enactment of section 112(n),
Congress passed legislation designed to provide an additional tax
benefit to older taxpayers selling or exchanging a principal
residence. Recognizing that older taxpayers “may desire to
purchase a less expensive home or move to an apartment or to a
rental property” and that such taxpayers might “require some or
all of the funds obtained from the sale of the old residence to
meet * * * living expenses”, S. Rept. 830, 88th Cong., 2d Sess.
51 (1964), 1964-1 C.B. (Part 2) 505, 555, Congress enacted
section 121 under the Revenue Act of 1964, Pub. L. 88-272, sec.
206, 78 Stat. 19, 38, allowing older taxpayers to exclude from
gross income a portion of the gain realized on the sale or
exchange of a principal residence.
B. Section 1034
Section 1034, Rollover Of Gain On Sale Of Principal
Residence, provides in pertinent part:
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
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