Gain upon sale of residence exceeding $500,000

[dyne]

I just read that if a personal residence is sold and the gain under Section 121
exceeds $250,000 or $500,00 the remaining gain may be excludible under other rules.
In researching it appears that the excess gain may be excluded under the old rules
if the basis in the new residence exceeds that of the old residence. What happens if the
taxpayer does NOT qualify for the Section 121 exclusion? Can he or she then
qualify for the exclusion under the old rules?

[Davc]

I just read that if a personal residence is sold and the gain under Section 121
exceeds $250,000 or $500,00 the remaining gain may be excludible under other rules.
In researching it appears that the excess gain may be excluded under the old rules
if the basis in the new residence exceeds that of the old residence. I learn something new every day.
What happens if the taxpayer does NOT qualify for the Section 121 exclusion? Can he or she then
qualify for the exclusion under the old rules?

1034 was repealed and 121 was replaced with the new version. Assuming you're not misinterpreting what you read I'd take that particular source off of your reference list.

[jimmcg]

1034 was repealed and 121 was replaced with the new version. Assuming you're not misinterpreting what you read I'd take that particular source off of your reference list.

Agree with Davc. Where did you read that? That provision of sec 1034 is long gone. Got a current Code cite?

[dyne]

I just finished a correspondence course on income tax which says in the chapter regarding Sale of Residence (Section 121): "Any part of the gain that cannot be excluded (because it is more than the $250,000 or $500,000 limit) may be postponed under other rules." IRC 121 states that a personal residence gain may be excluded under Section 1033 IF it is an involuntary conversion. I interpret this to say that otherwise any gain exceeding the $250,000 or $500,000 limit is taxable because IRC 1034 has been repealed. Am I correct?

[jimmcg]

I just finished a correspondence course on income tax which says in the chapter regarding Sale of Residence (Section 121): "Any part of the gain that cannot be excluded (because it is more than the $250,000 or $500,000 limit) may be postponed under other rules." IRC 121 states that a personal residence gain may be excluded under Section 1033 IF it is an involuntary conversion. I interpret this to say that otherwise any gain exceeding the $250,000 or $500,000 limit is taxable because IRC 1034 has been repealed. Am I correct?

Absent any other facts than already stated and assuming that this is strictly the sale of a personal residence and not an involuntary conversion you are correct.

[joanmcq]

On the flipside, if gain was deferred under the old rules, it must be taken into account when doing the Sec 121 basis calc. When did you last ask a client if they deferred gain by 'buying down' or because they used the one-time senior $125,000 deferral?

[Gary2]

"Any part of the gain that cannot be excluded (because it is more than the $250,000 or $500,000 limit) may be postponed under other rules." ... I interpret this to say that otherwise any gain exceeding the $250,000 or $500,000 limit is taxable because IRC 1034 has been repealed. Am I correct?

I interpret it more simply. It's just saying that there's nothing about this rule that prevents you from applying other rules to the excess. It wasn't intended to send you off looking at 1034 or other specific benefits, nor was it implying some conclusion about whether the excess is taxable or non-taxable.

Compare this with the education credits, where if you have $10K of tuition expenses, you can't apply $4K for AOC and $6K for LLC.