26 U.S.C. § 121 : US Code - Section 121: Exclusion of gain from sale of principal residence

Search 26 U.S.C. § 121 : US Code - Section 121: Exclusion of gain from sale of principal residence

(a) Exclusion
Gross income shall not include gain from the sale or exchange of
property if, during the 5-year period ending on the date of the
sale or exchange, such property has been owned and used by the
taxpayer as the taxpayer's principal residence for periods
aggregating 2 years or more.
(b) Limitations
(1) In general
The amount of gain excluded from gross income under subsection
(a) with respect to any sale or exchange shall not exceed
$250,000.
(2) Special rules for joint returns
In the case of a husband and wife who make a joint return for
the taxable year of the sale or exchange of the property -
(A) $500,000 Limitation for certain joint returns
Paragraph (1) shall be applied by substituting "$500,000" for
"$250,000" if -
(i) either spouse meets the ownership requirements of
subsection (a) with respect to such property;
(ii) both spouses meet the use requirements of subsection
(a) with respect to such property; and
(iii) neither spouse is ineligible for the benefits of
subsection (a) with respect to such property by reason of
paragraph (3).
(B) Other joint returns
If such spouses do not meet the requirements of subparagraph
(A), the limitation under paragraph (1) shall be the sum of the
limitations under paragraph (1) to which each spouse would be
entitled if such spouses had not been married. For purposes of
the preceding sentence, each spouse shall be treated as owning
the property during the period that either spouse owned the
property.
(3) Application to only 1 sale or exchange every 2 years
(A) In general
Subsection (a) shall not apply to any sale or exchange by the
taxpayer if, during the 2-year period ending on the date of
such sale or exchange, there was any other sale or exchange by
the taxpayer to which subsection (a) applied.
(B) Pre-May 7, 1997, sales not taken into account
Subparagraph (A) shall be applied without regard to any sale
or exchange before May 7, 1997.
(c) Exclusion for taxpayers failing to meet certain requirements
(1) In general
In the case of a sale or exchange to which this subsection
applies, the ownership and use requirements of subsection (a),
and subsection (b)(3), shall not apply; but the dollar limitation
under paragraph (1) or (2) of subsection (b), whichever is
applicable, shall be equal to -
(A) the amount which bears the same ratio to such limitation
(determined without regard to this paragraph) as
(B)(i) the shorter of -
(I) the aggregate periods, during the 5-year period ending
on the date of such sale or exchange, such property has been
owned and used by the taxpayer as the taxpayer's principal
residence; or
(II) the period after the date of the most recent prior
sale or exchange by the taxpayer to which subsection (a)
applied and before the date of such sale or exchange, bears
to
(ii) 2 years.
(2) Sales and exchanges to which subsection applies
This subsection shall apply to any sale or exchange if -
(A) subsection (a) would not (but for this subsection) apply
to such sale or exchange by reason of -
(i) a failure to meet the ownership and use requirements of
subsection (a), or
(ii) subsection (b)(3), and
(B) such sale or exchange is by reason of a change in place
of employment, health, or, to the extent provided in
regulations, unforeseen circumstances.
(d) Special rules
(1) Joint returns
If a husband and wife make a joint return for the taxable year
of the sale or exchange of the property, subsections (a) and (c)
shall apply if either spouse meets the ownership and use
requirements of subsection (a) with respect to such property.
(2) Property of deceased spouse
For purposes of this section, in the case of an unmarried
individual whose spouse is deceased on the date of the sale or
exchange of property, the period such unmarried individual owned
and used such property shall include the period such deceased
spouse owned and used such property before death.
(3) Property owned by spouse or former spouse
For purposes of this section -
(A) Property transferred to individual from spouse or former
spouse
In the case of an individual holding property transferred to
such individual in a transaction described in section 1041(a),
the period such individual owns such property shall include the
period the transferor owned the property.
(B) Property used by former spouse pursuant to divorce decree,
etc.
Solely for purposes of this section, an individual shall be
treated as using property as such individual's principal
residence during any period of ownership while such
individual's spouse or former spouse is granted use of the
property under a divorce or separation instrument (as defined
in section 71(b)(2)).
(4) Tenant-stockholder in cooperative housing corporation
For purposes of this section, if the taxpayer holds stock as a
tenant-stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), then -
(A) the holding requirements of subsection (a) shall be
applied to the holding of such stock, and
(B) the use requirements of subsection (a) shall be applied
to the house or apartment which the taxpayer was entitled to
occupy as such stockholder.
(5) Involuntary conversions
(A) In general
For purposes of this section, the destruction, theft,
seizure, requisition, or condemnation of property shall be
treated as the sale of such property.
(B) Application of section 1033
In applying section 1033 (relating to involuntary
conversions), the amount realized from the sale or exchange of
property shall be treated as being the amount determined
without regard to this section, reduced by the amount of gain
not included in gross income pursuant to this section.
(C) Property acquired after involuntary conversion
If the basis of the property sold or exchanged is determined
(in whole or in part) under section 1033(b) (relating to basis
of property acquired through involuntary conversion), then the
holding and use by the taxpayer of the converted property shall
be treated as holding and use by the taxpayer of the property
sold or exchanged.
(6) Recognition of gain attributable to depreciation
Subsection (a) shall not apply to so much of the gain from the
sale of any property as does not exceed the portion of the
depreciation adjustments (as defined in section 1250(b)(3))
attributable to periods after May 6, 1997, in respect of such
property.
(7) Determination of use during periods of out-of-residence care
In the case of a taxpayer who -
(A) becomes physically or mentally incapable of self-care,
and
(B) owns property and uses such property as the taxpayer's
principal residence during the 5-year period described in
subsection (a) for periods aggregating at least 1 year,
then the taxpayer shall be treated as using such property as the
taxpayer's principal residence during any time during such 5-year
period in which the taxpayer owns the property and resides in any
facility (including a nursing home) licensed by a State or
political subdivision to care for an individual in the taxpayer's
condition.
(8) Sales of remainder interests
For purposes of this section -
(A) In general
At the election of the taxpayer, this section shall not fail
to apply to the sale or exchange of an interest in a principal
residence by reason of such interest being a remainder interest
in such residence, but this section shall not apply to any
other interest in such residence which is sold or exchanged
separately.
(B) Exception for sales to related parties
Subparagraph (A) shall not apply to any sale to, or exchange
with, any person who bears a relationship to the taxpayer which
is described in section 267(b) or 707(b).
(9) Members of uniformed services and Foreign Service
(A) In general
At the election of an individual with respect to a property,
the running of the 5-year period described in subsections (a)
and (c)(1)(B) and paragraph (7) of this subsection with respect
to such property shall be suspended during any period that such
individual or such individual's spouse is serving on qualified
official extended duty as a member of the uniformed services or
of the Foreign Service of the United States.
(B) Maximum period of suspension
The 5-year period described in subsection (a) shall not be
extended more than 10 years by reason of subparagraph (A).
(C) Qualified official extended duty
For purposes of this paragraph -
(i) In general
The term "qualified official extended duty" means any
extended duty while serving at a duty station which is at
least 50 miles from such property or while residing under
Government orders in Government quarters.
(ii) Uniformed services
The term "uniformed services" has the meaning given such
term by section 101(a)(5) of title 10, United States Code, as
in effect on the date of the enactment of this paragraph.
(iii) Foreign Service of the United States
The term "member of the Foreign Service of the United
States" has the meaning given the term "member of the
Service" by paragraph (1), (2), (3), (4), or (5) of section
103 of the Foreign Service Act of 1980, as in effect on the
date of the enactment of this paragraph.
(iv) Extended duty
The term "extended duty" means any period of active duty
pursuant to a call or order to such duty for a period in
excess of 90 days or for an indefinite period.
(D) Special rules relating to election
(i) Election limited to 1 property at a time
An election under subparagraph (A) with respect to any
property may not be made if such an election is in effect
with respect to any other property.
(ii) Revocation of election
An election under subparagraph (A) may be revoked at any
time.
(10) Property acquired in like-kind exchange
If a taxpayer acquires property in an exchange with respect to
which gain is not recognized (in whole or in part) to the
taxpayer under subsection (a) or (b) of section 1031, subsection
(a) shall not apply to the sale or exchange of such property by
such taxpayer (or by any person whose basis in such property is
determined, in whole or in part, by reference to the basis in the
hands of such taxpayer) during the 5-year period beginning with
the date of such acquisition.
(e) Denial of exclusion for expatriates
This section shall not apply to any sale or exchange by an
individual if the treatment provided by section 877(a)(1) applies
to such individual.
(f) Election to have section not apply
This section shall not apply to any sale or exchange with respect
to which the taxpayer elects not to have this section apply.
(g) Residences acquired in rollovers under section 1034
For purposes of this section, in the case of property the
acquisition of which by the taxpayer resulted under section 1034
(!1) (as in effect on the day before the date of the enactment of
this section) in the nonrecognition of any part of the gain
realized on the sale or exchange of another residence, in
determining the period for which the taxpayer has owned and used
such property as the taxpayer's principal residence, there shall be
included the aggregate periods for which such other residence (and
each prior residence taken into account under section 1223(6) in
determining the holding period of such property) had been so owned
and used.