1994 US Code
Title 26 - INTERNAL REVENUE CODE
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter O - Gain or Loss on Disposition of Property
PART III - COMMON NONTAXABLE EXCHANGES
Sec. 1034 - Rollover of gain on sale of principal residence

View Metadata

§1034. Rollover of gain on sale of principal residence (a) Nonrecognition of gain

If property (in this section called “old residence”) used by the taxpayer as his principal residence is sold by him and, within a period beginning 2 years before the date of such sale and ending 2 years after such date, property (in this section called “new residence”) is purchased and used by the taxpayer as his principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's adjusted sales price (as defined in subsection (b)) of the old residence exceeds the taxpayer's cost of purchasing the new residence.

(b) Adjusted sales price defined (1) In general

For purposes of this section, the term “adjusted sales price” means the amount realized, reduced by the aggregate of the expenses for work performed on the old residence in order to assist in its sale.

(2) Limitations

The reduction provided in paragraph (1) applies only to expenses—

(A) for work performed during the 90-day period ending on the day on which the contract to sell the old residence is entered into;

(B) which are paid on or before the 30th day after the date of the sale of the old residence; and

(C) which are—

(i) not allowable as deductions in computing taxable income under section 63 (defining taxable income), and

(ii) not taken into account in computing the amount realized from the sale of the old residence.

(c) Rules for application of section

For purposes of this section:

(1) An exchange by the taxpayer of his residence for other property shall be treated as a sale of such residence, and the acquisition of a residence on the exchange of property shall be treated as a purchase of such residence.

(2) A residence any part of which was constructed or reconstructed by the taxpayer shall be treated as purchased by the taxpayer. In determining the taxpayer's cost of purchasing a residence, there shall be included only so much of his cost as is attributable to the acquisition, construction, reconstruction, and improvements made which are properly chargeable to capital account, during the period specified in subsection (a).

(3) If a residence is purchased by the taxpayer before the date of his sale of the old residence, the purchased residence shall not be treated as his new residence if sold or otherwise disposed of by him before the date of the sale of the old residence.

(4) If the taxpayer, during the period described in subsection (a), purchases more than one residence which is used by him as his principal residence at some time within 2 years after the date of the sale of the old residence, only the last of such residences so used by him after the date of such sale shall constitute the new residence. If a principal residence is sold in a sale to which subsection (d)(2) applies within 2 years after the sale of the old residence, for purposes of applying the preceding sentence with respect to the old residence, the principal residence so sold shall be treated as the last residence used during such 2-year period.

(d) Limitation (1) In general

Subsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 2 years before the date of such sale the taxpayer sold at a gain other property used by him as his principal residence, and any part of such gain was not recognized by reason of subsection (a).

(2) Subsequent sale connected with commencing work at new place

Paragraph (1) shall not apply with respect to the sale of the taxpayer's residence if—

(A) such sale was in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work, and

(B) if the residence so sold is treated as the former residence for purposes of section 217 (relating to moving expenses), the taxpayer would satisfy the conditions of subsection (c) of section 217 (as modified by the other subsections of such section).

(e) Basis of new residence

Where the purchase of a new residence results, under subsection (a) or under section 112 (n) of the Internal Revenue Code of 1939, in the nonrecognition of gain on the sale of an old residence, in determining the adjusted basis of the new residence as of any time following the sale of the old residence, the adjustments to basis shall include a reduction by an amount equal to the amount of the gain not so recognized on the sale of the old residence. For this purpose, the amount of the gain not so recognized on the sale of the old residence includes only so much of such gain as is not recognized by reason of the cost, up to such time, of purchasing the new residence.

(f) Tenant-stockholder in a cooperative housing corporation

For purposes of this section, section 1016 (relating to adjustments to basis), and section 1223 (relating to holding period), references to property used by the taxpayer as his principal residence, and references to the residence of a taxpayer, shall include stock held by a tenant-stockholder (as defined in section 216, relating to deduction for amounts representing taxes and interest paid to a cooperative housing corporation) in a cooperative housing corporation (as defined in such section) if—

(1) in the case of stock sold, the house or apartment which the taxpayer was entitled to occupy as such stockholder was used by him as his principal residence, and

(2) in the case of stock purchased, the taxpayer used as his principal residence the house or apartment which he was entitled to occupy as such stockholder.

(g) Husband and wife

If the taxpayer and his spouse, in accordance with regulations which shall be prescribed by the Secretary pursuant to this subsection, consent to the application of paragraph (2) of this subsection, then—

(1) for purposes of this section—

(A) the taxpayer's adjusted sales price of the old residence is the adjusted sales price (of the taxpayer, or of the taxpayer and his spouse) of the old residence, and

(B) the taxpayer's cost of purchasing the new residence is the cost (to the taxpayer, his spouse, or both) of purchasing the new residence (whether held by the taxpayer, his spouse, or the taxpayer and his spouse); and

(2) so much of the gain on the sale of the old residence as is not recognized solely by reason of this subsection, and so much of the adjustment under subsection (e) to the basis of the new residence as results solely from this subsection shall be allocated between the taxpayer and his spouse as provided in such regulations.

This subsection shall apply only if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence. In case the taxpayer and his spouse do not consent to the application of paragraph (2) of this subsection then the recognition of gain on the sale of the old residence shall be determined under this section without regard to the rules provided in this subsection. For purposes of this subsection, except to the extent provided in regulations, in the case of an individual who dies after the date of the sale of the old residence and is married on the date of death, consent to the application of paragraph (2) by such individual's spouse and use of the new residence as the principal residence of such spouse shall be treated as consent and use by such individual.

(h) Members of Armed Forces (1) In general

The running of any period of time specified in subsection (a) or (c) (other than the 2 years referred to in subsection (c)(4)) shall be suspended during any time that the taxpayer (or his spouse if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence) serves on extended active duty with the Armed Forces of the United States after the date of the sale of the old residence, except that any such period of time as so suspended shall not extend beyond the date 4 years after the date of the sale of the old residence.

(2) Members stationed outside the United States or required to reside in Government quarters

In the case of any taxpayer who, during any period of time the running of which is suspended by paragraph (1)—

(A) is stationed outside of the United States, or

(B) after returning from a tour of duty outside of the United States and pursuant to a determination by the Secretary of Defense that adequate off-base housing is not available at a remote base site, is required to reside in on-base Government quarters,

any such period of time as so suspended shall not expire before the day which is 1 year after the last day described in subparagraph (A) or (B), as the case may be, except that any such period of time as so suspended shall not extend beyond the date which is 8 years after the date of the sale of the old residence.

(3) Extended active duty defined

For purposes of this subsection, the term “extended active 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.

(ii) 1 Special rule for condemnation

In the case of the seizure, requisition, or condemnation of a residence, or the sale or exchange of a residence under threat or imminence thereof, the provisions of this section, in lieu of section 1033 (relating to involuntary conversions), shall be applicable if the taxpayer so elects. If such election is made, such seizure, requisition, or condemnation shall be treated as the sale of the residence. Such election shall be made at such time and in such manner as the Secretary shall prescribe by regulations.

(j) Statute of limitations

If the taxpayer during a taxable year sells at a gain property used by him as his principal residence, then—

(1) the statutory period for the assessment of any deficiency attributable to any part of such gain shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) of—

(A) the taxpayer's cost of purchasing the new residence which the taxpayer claims results in nonrecognition of any part of such gain,

(B) the taxpayer's intention not to purchase a new residence within the period specified in subsection (a), or

(C) a failure to make such purchase within such period; and

(2) such deficiency may be assessed before the expiration of such 3–year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.

(k) Individual whose tax home is outside the United States

The running of any period of time specified in subsection (a) or (c) (other than the 2 years referred to in subsection (c)(4)) shall be suspended during any time that the taxpayer (or his spouse if the old residence and the new residence are each used by the taxpayer and his spouse as their principal residence) has a tax home (as defined in section 911(d)(3)) outside the United States after the date of the sale of the old residence; except that any such period of time as so suspended shall not extend beyond the date 4 years after the date of the sale of the old residence.

(l) Cross reference

For one-time exclusion from gross income of gain from sale of principal residence by individual who has attained age 55, see section 121.

(Aug. 16, 1954, ch. 736, 68A Stat. 306; Sept. 2, 1958, Pub. L. 85–866, title I, §46(b), 72 Stat. 1642; Feb. 26, 1964, Pub. L. 88–272, title II, §206(b)(4), 78 Stat. 40; Jan. 2, 1975, Pub. L. 93–597, §6(a), 88 Stat. 1953; Mar. 29, 1975, Pub. L. 94–12, title II, §207, 89 Stat. 32; Oct. 4, 1976, Pub. L. 94–455, title XIX, §§1901(a)(129), 1906(b)(13)(A), 90 Stat. 1785, 1834; May 23, 1977, Pub. L. 95–30, title I, §102(b)(13), 91 Stat. 138; Nov. 6, 1978, Pub. L. 95–600, title IV, §§404(c)(5), 405(a)–(c)(1), 92 Stat. 2870, 2871; Nov. 8, 1978, Pub. L. 95–615, title II, §206, 92 Stat. 3107; Aug. 13, 1981, Pub. L. 97–34, title I, §§112(b)(4), 122(a), (b), 95 Stat. 195, 197; July 18, 1984, Pub. L. 98–369, div. A, title X, §1053(a), 98 Stat. 1045; Oct. 22, 1986, Pub. L. 99–514, title XVIII, §1878(g), 100 Stat. 2904; Nov. 10, 1988, Pub. L. 100–647, title VI, §6002(a), 102 Stat. 3684.)

References in Text

Section 112 of the Internal Revenue Code of 1939, referred to in subsec. (e), was classified to section 112 of former Title 26, Internal Revenue Code. Section 112 was repealed by section 7851(a)(1) of this title. For table of comparisons of the 1939 Code to the 1986 Code, see Table I preceding section 1 of this title. See, also, section 7851(e) of this title, for provisions that references in the 1986 Code to provision of the 1939 Code, not then applicable, shall be deemed a reference to the corresponding provision of the 1986 Code, which is then applicable.

Amendments

1988—Subsec. (g). Pub. L. 100–647 inserted at end “For purposes of this subsection, except to the extent provided in regulations, in the case of an individual who dies after the date of the sale of the old residence and is married on the date of death, consent to the application of paragraph (2) by such individual's spouse and use of the new residence as the principal residence of such spouse shall be treated as consent and use by such individual.”

1986—Subsec. (h)(2). Pub. L. 99–514 substituted “before the day which is 1 year after the last day described” for “before the last day described”.

1984—Subsec. (h). Pub. L. 98–369, in amending subsec. generally, divided existing unnumbered provisions into pars. (1) and (3), and added par. (2).

1981—Subsec. (a). Pub. L. 97–34, §122(a), substituted “2 years” for “18 months” in two places.

Subsec. (c)(4). Pub. L. 97–34, §122(a), (b)(1), substituted “2 years” and “2-year period” for “18 months” and “18-month period”, respectively, wherever appearing.

Subsec. (c)(5). Pub. L. 97–34, §122(b)(2), struck out par. (5) which provided that, in the case of a new residence the construction of which was commenced by the taxpayer before the expiration of 18 months after the date of the sale of the old residence, the period specified in subsection (a), and the 18 months referred to in paragraph (4) of this subsection, was to be treated as including a period of 2 years beginning with the date of the sale of the old residence.

Subsecs. (d)(1), (h), (k). Pub. L. 97–34, §122(a), substituted “2 years” for “18 months” wherever appearing.

Pub. L. 97–34, §112(b)(4) substituted “section 911(d)(3)” for “section 913(j)(1)(B)”.

1978—Pub. L. 95–600, §405(c)(1), substituted “Rollover of gain on sale of principal” for “Sale or exchange of” in section catchline.

Subsec. (c)(4). Pub. L. 95–600, §405(b), inserted provisions relating to the treatment of the principal residence as the last residence.

Subsec. (d). Pub. L. 95–600, §405(a), designated existing provisions as par. (1) and added par. (2).

Subsec. (k). Pub. L. 95–615, §206, added subsec. (k). Former subsec. (k) redesignated (l).

Pub. L. 95–600, §404(c)(5), inserted provisions relating to a one-time exclusion and principal residence, and substituted “55” for “65”.

Subsec. (l). Pub. L. 95–615, §206, redesignated former subsec. (k) as (l).

1977—Subsec. (b)(2)(C)(i). Pub. L. 95–30 substituted “section 63” for “section 63(a)”.

1976—Subsec. (a). Pub. L. 94–455, §1901(a)(129)(A), struck out “after December 31, 1953,” after “his principal residence is sold by him”.

Subsec. (b)(3). Pub. L. 94–455, §1901(a)(129)(B), struck out par. (3) which related to the effective date of subsec. (b).

Subsec. (d). Pub. L. 94–455, §1901(a)(129)(C), struck out “or section 112(n) of the Internal Revenue Code of 1939” after “by reason of subsection (a)”.

Subsec. (g). Pub. L. 94–455, §1906(b)(13)(A), struck out “or his delegate” after “Secretary”.

Subsec. (i). Pub. L. 94–455, 1901(a)(129)(D), among other changes, substituted in heading “Special rule for condemnation” for “Special rule for involuntary conversions” and in text, a uniform provision for the treatment of condemnations as a sale at election of taxpayer for provisions relating to involuntary conversions providing for different treatment for different dates of conversion, and struck out provision relating to cross reference to section 1033 for treatment of residences involuntarily converted after December 31, 1953.

Subsec. (j). Pub. L. 94–455 §§1901(a)(129)(E), 1906(b)(13)(A), struck out “after December 31, 1950,” before “the taxpayer during a taxable year”, and “or his delegate” after “Secretary” wherever appearing.

1975—Subsecs. (a), (c)(4). Pub. L. 94–12, §207(a)(1), substituted “18 months” for “1 year” wherever appearing.

Subsec. (c)(5). Pub. L. 94–12, §207(a)(1), (2), (b), substituted “18 months” for “1 year” and “one year”, respectively, and “2 years” for “18 months”.

Subsecs. (d), (h). Pub. L. 94–12, §207(a)(1), substituted “18 months” for “1 year”.

Pub. L. 93–597 struck out “and during an induction period (as defined in section 112(c)(5))” after “date of the sale of the old residence.

1964—Subsec. (k). Pub. L. 88–272 added subsec. (k).

1958—Subsec. (i)(2), (3). Pub. L. 85–866 added par. (2) and redesignated former par. (2) as (3).

Effective Date of 1988 Amendment

Section 6002(b) of Pub. L. 100–647 provided that: “The amendment made by paragraph (1) [probably should be “subsection (a)”, which amended this section] shall apply to sales and exchanges of old residences (within the meaning of section 1034 of the 1986 Code) after December 31, 1984, in taxable years ending after such date.”

Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1984 Amendment

Section 1053(b) of Pub. L. 98–369, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendments made by this section [amending this section] shall apply to sales of old residences (within the meaning of section 1034 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) after the date of the enactment of this Act [July 18, 1984].”

Effective Date of 1981 Amendment

Section 122(c) of Pub. L. 97–34, as amended by Pub. L. 97–448, title I, §101(d), Jan. 12, 1983, 96 Stat. 2366; Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendments made by this section [amending this section] shall apply to old residences (within the meaning of section 1034 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) sold or exchanged—

“(1) after July 20, 1981, or

“(2) on or before such date, if the rollover period under such section (determined without regard to the amendments made by this section) expires on or after such date.

Notwithstanding the preceding sentence, the taxpayer may elect to have the amendments made by this section [amending this section] not apply to any old residence sold or exchanged on or before August 13, 1981. Such an election shall be made at such time and in such manner as the Secretary of the Treasury or his delegate shall by regulations prescribe.”

Amendment by section 112(b)(4) of Pub. L. 97–34 applicable with respect to taxable years beginning after Dec. 31, 1981, see section 115 of Pub. L. 97–34, set out as a note under section 911 of this title.

Effective Date of 1978 Amendment

Amendment by section 404(c)(5) of Pub. L. 95–600 applicable to sales or exchanges after July 26, 1978, in taxable years ending after such date, see section 404(d)(1) of Pub. L. 95–600, set out as a note under section 121 of this title.

Section 405(d) of Pub. L. 95–600 provided that: “The amendments made by this section [amending this section and sections 1038, 1250, 6212, and 6504 of this title] shall apply to sales and exchanges of residences after July 26, 1978, in taxable years ending after such date.”

Effective Date of 1978 Amendment; Election of Prior Law

Amendment by Pub. L. 95–615 applicable to taxable years beginning after Dec. 31, 1977, with provision for election of prior law, see section 209 of Pub. L. 95–615, set out as a note under section 911 of this title.

Effective Date of 1977 Amendment

Amendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title.

Effective Date of 1976 Amendment

Amendment by section 1901(a)(129) of Pub. L. 94–455 effective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date of 1975 Amendments

Section 209(e) of Pub. L. 94–12, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendments made by section 207 [amending this section] shall apply to old residences (within the meaning of section 1034 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) sold or exchanged after December 31, 1974, in taxable years ending after such date.”

Section 6(c) of Pub. L. 93–597 provided that: “The amendments made by this section [amending this section and section 2201 of this title] shall take effect on July 1, 1973.”

Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable to dispositions after Dec. 31, 1963, in taxable years ending after such date, see section 206(c) of Pub. L. 88–272, set out as Effective Date note under section 121 of this title.

Effective Date of 1958 Amendment

Amendment by Pub. L. 85–866 applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c)(1) of Pub. L. 85–866, set out as a note under section 165 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

Nonrecognition of Gain on Sale of Principal Residence

Pub. L. 96–598, §2, Dec. 24, 1980, 94 Stat. 3486, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095, provided that:

“(a) In General.—In the case of an individual—

“(1) who sold his principal residence (within the meaning of section 1034 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) in 1977,

“(2) who purchased property on which to construct a new principal residence (within the meaning of such section)—

“(A) the construction of which commenced during such year, and

“(B) the construction of which was terminated before completion,

“(3) who brought an action, and obtained a judgment, against the builder who commenced construction of the new residence but failed to complete it,

“(4) who suspended construction of such residence so that the partially constructed residence could be used as evidence in connection with the prosecution of the builder (without regard to whether it was so used), and

“(5) who failed to meet the requirements of such section with respect to occupancy of the new principal residence because of such suspension of construction,

the Secretary of the Treasury, in the administration of section 1034(c) of the Internal Revenue Code of 1986 (relating to rules for application of section 1034), shall apply paragraph (5) of such section as if ‘5 years’ were substituted for ‘2 years’ where it appears in the last sentence of such paragraph.

“(b) Effective Date.—The provisions of the first section of this Act [this note] shall apply with respect to taxable years beginning after December 31, 1976, and before January 1, 1983.”

Cross References

Adjustments to basis, see section 1016 of this title.

Notice of deficiency, see section 6212 of this title.

Section Referred to in Other Sections

This section is referred to in sections 25, 32, 56, 121, 143, 163, 216, 280A, 464, 512, 1016, 1033, 1038, 1223, 1250, 1274, 6212, 6334, 6504, 7872 of this title.

1 So in original. Probably should be “(i)”.