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Unformatted text preview: Revenue Procedures Rev. Proc. 2005-14, 2005-7 IRB 528, 01/27/2005, IRC Sec(s). 121 Exclusion of gain from sale of principal residencesingle exchange of like-kind property. Headnote: IRS offered guidance to taxpayers who exchanges single property that meets requirements for gain exclusion under Code Sec. 121; and non-recognition of gain on like-kind exchange under Code Sec. 1031; . Specific computation directions were provided: Code Sec. 121; must be applied before Code Sec. 1031; , followed by application of Code Sec. 1031; to gain attributable to depreciation, with boot to be taken into account only to extent boot exceeds gain excluded under Code Sec. 121; with respect to relinquished business property. Guidance was also provided computing basis, and hypothetical illustrations were given. Reference(s): 1215.01(20); Code Sec. 121; Code Sec. 1031; Full Text: 1. Purpose This revenue procedure provides guidance on the application of 121 and 1031 of the Internal Revenue Code to a single exchange of property. 2. Background .01. Section 121(a) provides that a taxpayer may exclude gain realized on the sale or exchange of property if the property was owned and used as the taxpayer's principal residence for at least 2 years during the 5-year period ending on the date of the sale or exchange. Section 121(b) provides generally that the amount of the exclusion is limited to $250,000 ($500,000 for certain joint returns). Under 121(d)(6), any gain attributable to depreciation adjustments (as defined in 1250(b)(3)) for periods after May 6, 1997, is not eligible for the exclusion. This limitation applies only to depreciation allocable to the portion of the property to which the 121 exclusion applies. See 121-1(d)(1). .02. Section 121(d), as amended by 840 of the American Jobs Creation Act of 2004, Pub. L. 108-357, provides that, if a taxpayer acquired property in an exchange to which 1031 applied, the 121 exclusion will not apply if the sale or exchange of the property occurs during the 5-year period beginning on the date of the acquisition of the property. This provision is effective for sales or exchanges after October 22, 2004. .03. Under 1.121-1(e) of the Income Tax Regulations, a taxpayer who uses a portion of a property for residential purposes and a portion of the property for business purposes is treated as using the entire property as the taxpayer's principal residence for purposes of satisfying the 2-year use requirement if the residential and business portions of the property are within the same dwelling unit. Rev. Proc. 2005-14, 2005-7 IRB 528 -- IRC Sec(s). 121; 1031, 01/27/2005 Revenue Procedures (1955 - Present) Page 1 of 8 Document Display 11/2/2005 http://checkpoint.riag.com/servlet/com.tta.checkpoint.servlet.CPJSPServlet?usid=1db233a... The term dwelling unit has the same meaning as in 280A(f)(1), but does not include appurtenant structures or other property. If, however, the business portion of the property is separate from the structures or other property....
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