Sec 121 exclusion - Spidell

Sec 121 exclusion

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Message Board Sec 121 exclusion

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    • #273713
      Anonymous
      Member

      Client purchased a property to be used as primary residence.  The home was in disrepair and the client commenced plans to complete a major remodel (taking home down to studs).  In the planning stage, he decided to split the property into two parcels with the county and construct two homes.  One is planned to be the primary residence and one will be sold upon completion.  For basis, the original cost of home has been split between the two parcels based on sq footage of lots, and construction costs are being allocated.  I’ve told the client that Sec. 121 will not apply to the sale of the home that will be sold as it was never occupied by him.  Is there any way to get any exclusion on the second home?

    • #273714
      Peter Muffoletto
      Participant

      This reminds me of the old Abbott and Costello routine of who’s on 1st?

      are you asking about the house the taxpayer will be living in, or the one that is being built and sold?

      121 will apply to the personal residence he occupies assuming the taxpayer complies with the requirements of IRC 121 – but there is no exclusion of any sort to the property that is being sold whether that is being referred to in your question as the second home or not?

    • #273716
      Anonymous

      He is hoping that there is some way to apply a portion the 121 exclusion to the home that he plans to sell without having ever lived in it based on the fact that he originally purchased the property as a residence.  I’ve told him since he changed his intent and split the property into two parcels that the 121 exclusion cannot apply to the home he plans to sell (as opposed to the home he plans to move into as his primary residence).

    • #273737
      Tams Lai
      Participant

      Look at the following court case Gates, 135 T.C. No. 1

      House needs to be PRINCIPAL RESIDENCE and that the court found that the contextual usage of “house” and “home” by the legislators showed that they intended “principal residence” to refer to the dwelling structure occupied by the taxpayer. The issue I see is your client only had only intent but never lived there (second residence), that will be the issue unless they can show the second residence as an attachment to the principal residence and they used a portion of it (that would be a stretch).

    • #273760
      Mark Bole
      Participant

      “based on the fact that he originally purchased the property as a residence. I’ve told him since he changed his intent “

      The law in this case couldn’t care less about intent.

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