'Use' of principal residence does not require occupancy

Article Abstract:

A court held in 'Gummer,' 81 AFTR2d 98-1740 that physical occupancy is not the sole use criteria for obtaining a one-time tax exclusion of certain home sale gain under Section 121. The case involved a California taxpayer whose claim for exclusion of a gain on a home sale was rejected by the IRS because the said taxpayer failed to meet the strict physical occupancy requirement of the word 'use' and therefore should be considered separately from the analysis of whether the property was the taxpayer's principal residence. The court rejected the Service's position, arguing that the words 'use' and 'principal residence' were interdependent terms and that they were intended to ensure that only taxpayers who sold a principal residence realize a tax exclusion. The court also found that Section 121 Regulations and legislative history indicated a facts and circumstances analysis.

Tax Law, Public Finance Activities, Residential Buildings, Residential Building Construction, Tax Deductions & Exemptions, Cases, Residential construction, Tax deductions, Tax exclusion, United States. Internal Revenue Service

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Avoiding gain when mortgage payments cannot be made

Article Abstract:

Agreements between mortgagors and mortgagees to reduce the principal balance of mortgages in which the mortgagors retain title to the property typically are recognized as income. There is a purchase-money debt exception available to taxpayers, in which there is no recognition by the mortgagor of indebtedness income under specific rules. Mortgagors can elect not to recognize income from the discharge of indebtedness where a bankruptcy court has approved the reorganization plan of a mortgagor that has filed for bankruptcy, or where, prior to the discharge of debt, the mortgagor is insolvent. Taxpayers with financially troubled real estate projects must carefully plan to avoid unforeseen significant tax liabilities resulting from renegotiation of mortgages.

Analysis, Mortgages, Real property tax, Real property taxes

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Renting a residence need not preclude deferring gain on its later sale

Article Abstract:

In the Tax Court case of Bolaris, the sale of a principal residence for profit allowed the taxpayer both the benefit of the tax deduction and the deferral of the gain on the sale for income tax purposes. This decision by the Tax Court and its historical basis in other cases, such as Rechnitzer and Ginsburg, are discussed in an effort to identify the proper tax accounting treatments of homes that are residences and homes that must be classified as income-producing properties. Bolaris also demonstrates that conversion of a home's classification from principal residence to income-producing property will not disallow the deferral of income from the property under Section 1034 of the Internal Revenue Code.

Real estate agents and managers, Real estate, Real property

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