Tuesday, September 8, 2015

No Principal Residence Gain Exclusion after Seller Reacquires Property

A taxpayer sold his principal residence and claimed a gain exclusion under IRC Sec. 121. Upon the buyer's default of the installment agreement, the taxpayer (seller) reacquired the property. The Tax Court examined the interplay between IRC Secs. 121 (principal gain exclusion) and 1038 (disregarded gain for reacquisition of property upon buyer's default on a debt secured by the property other than payments received prior to the reacquisition). Although the cash in excess of gain previously reported on the installment sale was taxable, the question was whether the gain could be excluded under IRC Sec. 121. The Tax Court determined that the gain could not be excluded. On appeal, the Eighth Circuit affirmed the Tax Court, holding that because the taxpayer didn't resell the property within one year, which is required under IRC Sec. 1038(e) , he wasn't entitled to the principal gain exclusion. Marvin E. DeBough, No. 14-3036, 2015 WL 5059103, (CA 8)

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