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Text of the Principal Residence Tax Exclusion Act of 1997

This bill was introduced on April 10, 1997, in a previous session of Congress, but was not enacted. The text of the bill below is as of Apr 10, 1997 (Introduced).

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HR 1286 IH

105th CONGRESS

1st Session

H. R. 1286

To amend the Internal Revenue Code of 1986 to provide an exemption from tax for gain on sale of a principal residence.

IN THE HOUSE OF REPRESENTATIVES

April 10, 1997

Mr. FOX of Pennsylvania introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to provide an exemption from tax for gain on sale of a principal residence.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Principal Residence Tax Exclusion Act of 1997’.

SEC. 2. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.

    (a) IN GENERAL- Section 121 of the Internal Revenue Code of 1986 (relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55) is amended to read as follows:

‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    ‘(a) EXCLUSION- Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

    ‘(b) LIMITATIONS-

      ‘(1) DOLLAR LIMITATION- The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000 ($500,000 in the case of a joint return where both spouses meet the use requirement of subsection (a)).

      ‘(2) APPLICATION TO ONLY 1 SALE OR EXCHANGE EVERY 2 YEARS-

        ‘(A) IN GENERAL- Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 2-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer or his spouse to which subsection (a) applied.

        ‘(B) PREMARRIAGE SALES BY SPOUSE NOT TAKEN INTO ACCOUNT- If, but for this subparagraph, subsection (a) would not apply to a sale or exchange by a married individual by reason of a sale or exchange by such individual’s spouse before their marriage--

          ‘(i) subparagraph (A) shall be applied without regard to the sale or exchange by such individual’s spouse, but

          ‘(ii) the amount of gain excluded from gross income under subsection (a) with respect to the sale or exchange by such individual shall not exceed $250,000.

        ‘(C) PRE-1998 SALES NOT TAKEN INTO ACCOUNT- Subparagraph (A) shall be applied without regard to any sale or exchange before January 1, 1998.

    ‘(c) EXCLUSION FOR TAXPAYERS FAILING TO MEET CERTAIN REQUIREMENTS-

      ‘(1) IN GENERAL- In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a) shall not apply and subsection (b)(2) shall not apply; but the amount of gain excluded from gross income under subsection (a) with respect to such sale or exchange shall not exceed--

        ‘(A) the amount which bears the same ratio to the amount which would be so excluded if such requirements had been met, as

        ‘(B) the shorter of--

          ‘(i) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence, or

          ‘(ii) the period after the date of the most recent prior sale or exchange by the taxpayer or his spouse to which subsection (a) applied and before the date of such sale or exchange,

        bears to 2 years.

      ‘(2) SALES AND EXCHANGES TO WHICH SUBSECTION APPLIES- This subsection shall apply to any sale or exchange if--

        ‘(A) subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of--

          ‘(i) a failure to meet the ownership and use requirements of subsection (a), or

          ‘(ii) subsection (b)(2), and

        ‘(B) such sale or exchange is by reason of a change in place of employment, health, or other unforeseen circumstances.

    ‘(d) SPECIAL RULES-

      ‘(1) JOINT RETURNS- For purposes of this section, if a husband and wife make a joint return for the taxable year of the sale or exchange of property, subsection (a) applies if either spouse meets the ownership and use requirements of subsection (a) with respect to such property.

      ‘(2) PROPERTY OF DECEASED SPOUSE- For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, the period such unmarried individual owned such property shall include the period such deceased spouse held such property before death.

      ‘(3) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION- For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then--

        ‘(A) the holding requirements of subsection (a) shall be applied to the holding of such stock, and

        ‘(B) the use requirements of subsection (a) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder.

      ‘(4) INVOLUNTARY CONVERSIONS-

        ‘(A) IN GENERAL- For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property.

        ‘(B) APPLICATION OF SECTION 1033- In applying section 1033 (relating to involuntary conversions), the amount realized from the sale or exchange of property shall be treated as being the amount determined without regard to this section, reduced by the amount of gain not included in gross income pursuant to this section.

        ‘(C) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION- If the basis of the property sold or exchanged is determined (in whole or in part) under section 1033(b) (relating to basis of property acquired through involuntary conversion), then the holding and use by the taxpayer of the converted property shall be treated as holding and use by the taxpayer of the property sold or exchanged.

      ‘(5) RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIATION- Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to periods after December 31, 1997, in respect of such property.

      ‘(6) DETERMINATION OF USE DURING PERIODS OF OUT-OF-RESIDENCE CARE- In the case of a taxpayer who--

        ‘(A) becomes physically or mentally incapable of self-care, and

        ‘(B) owns property and uses such property as the taxpayer’s principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year,

      then the taxpayer shall be treated as using such property as the taxpayer’s principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or

political subdivision to care for an individual in the taxpayer’s condition.

      ‘(7) DETERMINATION OF MARITAL STATUS- In the case of any sale or exchange, for purposes of this section--

        ‘(A) the determination of whether an individual is married shall be made as of the date of the sale or exchange, and

        ‘(B) an individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.

    ‘(e) DENIAL OF EXCLUSION FOR EXPATRIATES- This section shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) applies to such individual.

    ‘(f) ELECTION TO HAVE SECTION NOT APPLY- This section shall not apply to any sale or exchange with respect to which the taxpayer elects not to have this section apply.

    ‘(g) RESIDENCES ACQUIRED IN ROLLOVERS UNDER SECTION 1034- For purposes of this section, in the case of property the acquisition of which by the taxpayer resulted under section 1034 (as in effect on the day before the date of the enactment of this sentence) in the

nonrecognition of any part of the gain realized on the sale or exchange of another residence, in determining the period for which the taxpayer has owned and used such property as the taxpayer’s principal residence, there shall be included the aggregate periods for which such other residence (and each prior residence taken into account under section 1223(7) in determining the holding period of such property) had been so owned and used.’

    (b) REPEAL OF NONRECOGNITION OF GAIN ON ROLLOVER OF PRINCIPAL RESIDENCE- Section 1034 of such Code (relating to rollover of gain on sale of principal residence) is hereby repealed.

    (c) CONFORMING AMENDMENTS-

      (1) The following provisions of the Internal Revenue Code of 1986 are each amended by striking ‘section 1034’ and inserting ‘section 121’: sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 464(f)(3)(B)(i), 1033(k)(3), 1274(c)(3)(B), 6334(a)(13), and 7872(f)(11)(A).

      (2) Paragraph (4) of section 32(c) of such Code is amended by striking ‘(as defined in section 1034(h)(3))’ and by adding at the end the following new sentence: ‘For purposes of the preceding sentence, 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.’

      (3) Subparagraph (A) of 143(m)(6) of such Code is amended by inserting ‘(as in effect on the day before the date of the enactment of the Principal Residence Tax Exclusion Act of 1997)’ after ‘1034(e)’.

      (4) Subsection (e) of section 216 of such Code is amended by striking ‘such exchange qualifies for nonrecognition of gain under section 1034(f)’ and inserting ‘such dwelling unit is used as his principal residence (within the meaning of section 121)’.

      (5) Section 512(a)(3)(D) of such Code is amended by inserting ‘(as in effect on the day before the date of the enactment of the Principal Residence Tax Exclusion Act of 1997)’ after ‘1034’.

      (6) Paragraph (7) of section 1016(a) of such Code is amended by inserting ‘(as in effect on the day before the date of the enactment of the Principal Residence Tax Exclusion Act of 1997)’ after ‘1034’ and by inserting ‘(as so in effect)’ after ‘1034(e)’.

      (7) Paragraph (3) of section 1033(k) of such Code is amended to read as follows:

      ‘(3) For exclusion from gross income of gain from involuntary conversion of principal residence, see section 121.’

      (8) Subsection (e) of section 1038 of such Code is amended to read as follows:

    ‘(e) PRINCIPAL RESIDENCES- If--

      ‘(1) subsection (a) applies to a reacquisition of real property with respect to the sale of which gain was not recognized under section 121 (relating to gain on sale of principal residence); and

      ‘(2) within 1 year after the date of the reacquisition of such property by the seller, such property is resold by him,

    then, under regulations prescribed by the Secretary, subsections (b), (c), and (d) of this section shall not apply to the reacquisition of such property and, for purposes of applying section 121, the resale of such property shall be treated as a part of the transaction constituting the original sale of such property.’

      (9) Paragraph (7) of section 1223 of such Code is amended by inserting ‘(as in effect on the day before the date of the enactment of the Principal Residence Tax Exclusion Act of 1997)’ after ‘1034’.

      (10) Paragraph (7) of section 1250(d) of such Code is amended to read as follows:

      ‘(7) DISPOSITION OF PRINCIPAL RESIDENCE- Subsection (a) shall not apply to a disposition of property to the extent used by the taxpayer as his principal residence (within the meaning of section 121, relating to gain on sale of principal residence).’

      (11) Subsection (c) of section 6012 of such Code is amended by striking ‘(relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55)’ and inserting ‘(relating to gain from sale of principal residence)’.

      (12) Paragraph (2) of section 6212(c) of such Code is amended by striking subparagraph (C) and by redesignating the succeeding subparagraphs accordingly.

      (13) Section 6504 of such Code is amended by striking paragraph (4) and by redesignating the succeeding paragraphs accordingly.

      (14) The item relating to section 121 in the table of sections for part III of subchapter B of chapter 1 of such Code is amended to read as follows:

‘Sec. 121. Exclusion of gain from sale of principal residence.’

      (15) The table of sections for part III of subchapter O of chapter 1 of such Code is amended by striking the item relating to section 1034.

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to sales and exchanges after December 31, 1997.

      (2) BINDING CONTRACTS, ETC- At the election of the taxpayer, the amendments made by this section shall not apply to a sale or exchange after December 31, 1997, if--

        (A) such sale or exchange is pursuant to a contract which was binding on such date, and at all times before such sale or exchange, or

        (B) without regard to such amendments, gain would not be recognized under section 1034 of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act) on such sale or exchange by reason of a new residence acquired on or before such date.

      This paragraph shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) of the Internal Revenue Code of 1986 applies to such individual.