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petitioner’s underlying liability for 1995 is properly before the
Court, and we review that issue de novo. See Montgomery v.
Commissioner, 122 T.C. 1 (2004).
1995 Residence Sale
Section 61(a)(3) provides that a taxpayer must include in
gross income gains derived from dealings in property. Section
1001(c) generally requires a taxpayer to recognize the entire
amount of gain or loss realized on the sale or exchange of
property. Section 1034 provides an exception to this general
rule and allows a taxpayer to defer recognition of all or part of
any gain realized on the sale of a principal residence if other
property is purchased and used by the taxpayer as a new principal
residence within the period beginning 2 years before the date of
the sale and ending 2 years after that date (the replacement
period). Under section 1034(a), gain is recognized only to the
extent that the adjusted sale price of the old property exceeds
the cost of purchasing the new property.
The running of the period of time to purchase a replacement
residence is suspended for the period during which the taxpayer
has a “tax home” outside the United States, except that the
replacement period cannot extend beyond 4 years after the date of
the sale of the old residence. Sec. 1034(k). The term “tax
home” means with respect to any individual, the individual’s home
for purposes of section 162(a)(2). Sec. 911(d)(3).
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