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2. The South Point Road Lot
Having decided that the gain on the sale of Berlin house was
excludable under section 121, we now must determine whether the
gain on the adjacent South Point Road lot is also excludable.
Generally, gain from the sale or exchange of vacant land is not
excludable under section 121 unless--
(A) The vacant land is adjacent to land containing
the dwelling unit of the taxpayer’s principal
residence;
(B) The taxpayer owned and used the vacant land as
part of the taxpayer’s principal residence;
(C) The taxpayer sells or exchanges the dwelling
unit in a sale or exchange that meets the requirements
of section 121 within 2 years before or 2 years after
the date of the sale or exchange of the vacant land;
and
(D) The requirements of section 121 have otherwise
been met with respect to the vacant land.
Sec. 1.121-1(b)(3)(i), Income Tax Regs.
Respondent contends that the South Point Road lot was owned
by the Family Partnership, and therefore, petitioners are not
entitled to exclude the gain under section 121. Petitioners
9(...continued)
an increase in basis of $282,054 with respect to the cost of
improvements, taxes, and settlement charges. Accordingly, the
adjusted basis of the Berlin house at the time of sale was either
$597,054 or $647,054. The parties stipulated that petitioners
received net sales proceeds of $752,582. Therefore, petitioners
realized a capital gain of either $103,528 or $153,528 on the
sale of the Berlin house. As both of these amounts are less than
the $500,000 exclusion, we need not decide the basis of the
Berlin house.
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