CHAPTER 15—NONTAXABLE EXCHANGES
A taxpayer is able to use § 121 even if he or she temporarily rents his or her primary residence while
trying to sell it.
The residence needs to be the taxpayer's principal residence for two of the five years preceding the
sale. Even the rental or nonqualified use exception does not apply if the taxpayers does not move back
in to the residence.
pp. 15-5, 15-11 to 15-13, and § 121
B purchased a residence on April 12, 20X1 for $120,000. B moved in immediately and lived in the
home until it sold for $165,000 on March 25, 20X4. B may exclude all of the gain even though the
home was not owned for five years.
All that is required is that B have lived in and owned the home for two years (within the five years pre-
ceding the date of sale).
A loss on the sale of a principal residence may be deducted in the year of sale as a capital loss.
Losses on the sale of personal use property are not deductible.
p. 15-4 and § 165(c)
C purchased a mobile home for $78,000 for use as her residence on June 12, 20X1. She moved in im-
mediately. On June 12, 20X2, C was transferred to a new job. She rented the mobile home for six
months before she sold it for $108,000. C may exclude $15,000 (i.e., $30,000 gain x 1 year / 2 years).
False on two counts. C may exclude her entire gain. The maximum excludable is $125,000 (i.e.,
$250,000 x 1 year / 2 years). However, C must recapture depreciation to the extent allowed or allow-
pp. 15-6 and 15-10 to 15-11
K currently owns two residences. She lived in the first from January 1, 20X1 until June 30, 20X4.She
lived in the second from July 1, 20X4 until June 30, 20X6. Both residences have been owned since
January 1, 20X1 and were either rented or vacant when not occupied by K. K can sell both residences
on June 30, 20X6 and exclude her entire gain.
Even though both residences otherwise qualify, only one qualifying sale can be made every two years.
p. 15-7 and § 121(b)(3)