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Internal Revenue Code, § 121. Exclusion Of Gain From Sale Of Principal Residence

I.R.C. § 121(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.
I.R.C. § 121(b) Limitations
I.R.C. § 121(b)(1) In General
The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.
I.R.C. § 121(b)(2) Special Rules For Joint Returns
In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property—
I.R.C. § 121(b)(2)(A) $500,000 Limitation For Certain Joint Returns
Paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if—
I.R.C. § 121(b)(2)(A)(i)
either spouse meets the ownership requirements of subsection (a) with respect to such property;
I.R.C. § 121(b)(2)(A)(ii)
both spouses meet the use requirements of subsection (a) with respect to such property; and
I.R.C. § 121(b)(2)(A)(iii)
neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).
I.R.C. § 121(b)(2)(B) Other Joint Returns
If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.
I.R.C. § 121(b)(3) Application To Only 1 Sale Or Exchange Every 2 Years
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 to which subsection (a) applied.
I.R.C. § 121(b)(4) Special Rule For Certain Sales By Surviving Spouses
In the case of a sale or exchange of property by an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting “$500,000” for “$250,000” if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death.
I.R.C. § 121(b)(5) Exclusion Of Gain Allocated To Nonqualified Use
I.R.C. § 121(b)(5)(A) In General
Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of nonqualified use.
I.R.C. § 121(b)(5)(B) Gain Allocated To Periods Of Nonqualified Use
For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which—
I.R.C. § 121(b)(5)(B)(i)
the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to
I.R.C. § 121(b)(5)(B)(ii)
the period such property was owned by the taxpayer.
I.R.C. § 121(b)(5)(C) Period Of Nonqualified Use
For purposes of this paragraph—
I.R.C. § 121(b)(5)(C)(i) In General
The term “period of nonqualified use” means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer's spouse or former spouse.
I.R.C. § 121(b)(5)(C)(ii) Exceptions
The term “period of nonqualified use” does not include—
I.R.C. § 121(b)(5)(C)(ii)(I)
any portion of the 5-year period described in subsection (a) which is after the last date that such property is used as the principal residence of the taxpayer or the taxpayer's spouse,
I.R.C. § 121(b)(5)(C)(ii)(II)
any period (not to exceed an aggregate period of 10 years) during which the taxpayer or the taxpayer's spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of subsection (d)(9)(A), and
I.R.C. § 121(b)(5)(C)(ii)(III)
any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the Secretary.
I.R.C. § 121(b)(5)(D) Coordination With Recognition Of Gain Attributable To Depreciation
For purposes of this paragraph—
I.R.C. § 121(b)(5)(D)(i)
subparagraph (A) shall be applied after the application of subsection (d)(6), and
I.R.C. § 121(b)(5)(D)(ii)
subparagraph (B) shall be applied without regard to any gain to which subsection (d)(6) applies.
I.R.C. § 121(c) Exclusion For Taxpayers Failing To Meet Certain Requirements
I.R.C. § 121(c)(1) In General
In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to—
I.R.C. § 121(c)(1)(A)
the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as
I.R.C. § 121(c)(1)(B)
I.R.C. § 121(c)(1)(B)(i)
the shorter of—
I.R.C. § 121(c)(1)(B)(i)(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
I.R.C. § 121(c)(1)(B)(i)(II)
the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to
I.R.C. § 121(c)(2) Sales And Exchanges To Which Subsection Applies
This subsection shall apply to any sale or exchange if—
I.R.C. § 121(c)(2)(A)
subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of—
I.R.C. § 121(c)(2)(A)(i)
a failure to meet the ownership and use requirements of subsection (a), or
I.R.C. § 121(c)(2)(A)(ii)
subsection (b)(3), and
I.R.C. § 121(c)(2)(B)
such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.
I.R.C. § 121(d) Special Rules
I.R.C. § 121(d)(1) Joint Returns
If a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use requirements of subsection (a) with respect to such property.
I.R.C. § 121(d)(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 and used such property shall include the period such deceased spouse owned and used such property before death.
I.R.C. § 121(d)(3) Property Owned By Spouse Or Former Spouse
I.R.C. § 121(d)(3)(A) Property Transferred To Individual From Spouse Or Former Spouse
In the case of an individual holding property transferred to such individual in a transaction described in section 1041(a), the period such individual owns such property shall include the period the transferor owned the property.
I.R.C. § 121(d)(3)(B) Property Used By Former Spouse Pursuant To Divorce Decree, Etc.
Solely for purposes of this section, an individual shall be treated as using property as such individual's principal residence during any period of ownership while such individual's spouse or former spouse is granted use of the property under a divorce or separation instrument.
I.R.C. § 121(d)(3)(C) Divorce Or Separation Instrument
For purposes of this paragraph, the term ‘divorce or separation instrument’ means—
I.R.C. § 121(d)(3)(C)(i)
a decree of divorce or separate maintenance or a written instrument incident to such a decree,
I.R.C. § 121(d)(3)(C)(ii)
a written separation agreement, or
I.R.C. § 121(d)(3)(C)(iii)
a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse.
I.R.C. § 121(d)(4) 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—
I.R.C. § 121(d)(4)(A)
the holding requirements of subsection (a) shall be applied to the holding of such stock, and
I.R.C. § 121(d)(4)(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.
I.R.C. § 121(d)(5) Involuntary Conversions
I.R.C. § 121(d)(5)(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.
I.R.C. § 121(d)(5)(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.
I.R.C. § 121(d)(5)(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.
I.R.C. § 121(d)(6) 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 May 6, 1997, in respect of such property.
I.R.C. § 121(d)(7) Determination Of Use During Periods Of Out-Of-Residence Care
In the case of a taxpayer who—
I.R.C. § 121(d)(7)(A)
becomes physically or mentally incapable of self-care, and
I.R.C. § 121(d)(7)(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.
I.R.C. § 121(d)(8) Sales Of Remainder Interests
For purposes of this section—
I.R.C. § 121(d)(8)(A) In General
At the election of the taxpayer, this section shall not fail to apply to the sale or exchange of an interest in a principal residence by reason of such interest being a remainder interest in such residence, but this section shall not apply to any other interest in such residence which is sold or exchanged separately.
I.R.C. § 121(d)(8)(B) Exception For Sales To Related Parties
Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).
I.R.C. § 121(d)(9) Uniformed Services, Foreign Service, And Intelligence Community
I.R.C. § 121(d)(9)(A) In General
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual's spouse is serving on qualified official extended duty—
I.R.C. § 121(d)(9)(A)(i)
as a member of the uniformed services,
I.R.C. § 121(d)(9)(A)(ii)
as a member of the Foreign Service of the United States, or
I.R.C. § 121(d)(9)(A)(iii)
as an employee of the intelligence community.
I.R.C. § 121(d)(9)(B) Maximum Period Of Suspension
The 5-year period described in subsection (a) shall not be extended more than 10 years by reason of subparagraph (A).
I.R.C. § 121(d)(9)(C) Qualified Official Extended Duty
For purposes of this paragraph—
I.R.C. § 121(d)(9)(C)(i) In General
The term “qualified official extended duty” means any extended duty while serving at a duty station which is at least 50 miles from such property or while residing under Government orders in Government quarters.
I.R.C. § 121(d)(9)(C)(ii) Uniformed Services
The term “uniformed services” has the meaning given such term by section 101(a)(5) of title 10, United States Code, as in effect on the date of the enactment of this paragraph.
I.R.C. § 121(d)(9)(C)(iii) Foreign Service Of The United States
The term “member of the Foreign Service of the United States” has the meaning given the term “member of the Service” by paragraph (1), (2), (3), (4), or (5) of section 103 of the Foreign Service Act of 1980, as in effect on the date of the enactment of this paragraph.
I.R.C. § 121(d)(9)(C)(iv) Employee Of Intelligence Community
The term “employee of the intelligence community" means an employee (as defined by section 2105 of title 5, United States Code) of—
I.R.C. § 121(d)(9)(C)(iv)(I)
the Office of the Director of National Intelligence,
I.R.C. § 121(d)(9)(C)(iv)(II)
the Central Intelligence Agency,
I.R.C. § 121(d)(9)(C)(iv)(III)
the National Security Agency,
I.R.C. § 121(d)(9)(C)(iv)(IV)
the Defense Intelligence Agency,
I.R.C. § 121(d)(9)(C)(iv)(V)
the National Geospatial-Intelligence Agency,
I.R.C. § 121(d)(9)(C)(iv)(VI)
the National Reconnaissance Office,
I.R.C. § 121(d)(9)(C)(iv)(VII)
any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs,
I.R.C. § 121(d)(9)(C)(iv)(VIII)
any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard,
I.R.C. § 121(d)(9)(C)(iv)(IX)
the Bureau of Intelligence and Research of the Department of State, or
I.R.C. § 121(d)(9)(C)(iv)(X)
any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information.
I.R.C. § 121(d)(9)(C)(v) Extended Duty
The term “extended 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.
I.R.C. § 121(d)(9)(D) Special Rules Relating To Election
I.R.C. § 121(d)(9)(D)(i) Election Limited To 1 Property At A Time
An election under subparagraph (A) with respect to any property may not be made if such an election is in effect with respect to any other property.
I.R.C. § 121(d)(9)(D)(ii) Revocation Of Election
An election under subparagraph (A) may be revoked at any time.
I.R.C. § 121(d)(10) Property Acquired In Like-Kind Exchange
If a taxpayer acquires property in an exchange with respect to which gain is not recognized (in whole or in part) to the taxpayer under subsection (a) or 1031(b) of section 1031, subsection (a) shall not apply to the sale or exchange of such property by such taxpayer (or by any person whose basis in such property is determined, in whole or in part, by reference to the basis in the hands of such taxpayer) during the 5-year period beginning with the date of such acquisition.
I.R.C. § 121(d)(11)
[Repealed. Pub. L. 111-312, title III, Sec. 301(a).]
I.R.C. § 121(d)(12) Peace Corps
I.R.C. § 121(d)(12)(A) In General
At the election of an individual with respect to a property, the running of the 5-year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be suspended during any period that such individual or such individual's spouse is serving outside the United States—
I.R.C. § 121(d)(12)(A)(i)
on qualified official extended duty (as defined in paragraph (9)(C)) as an employee of the Peace Corps, or
I.R.C. § 121(d)(12)(A)(ii)
as an enrolled volunteer or volunteer leader under section 5 or 6 (as the case may be) of the Peace Corps Act (22 U.S.C. 2504, 2505).
I.R.C. § 121(d)(12)(B) Applicable Rules
For purposes of subparagraph (A), rules similar to the rules of subparagraphs (B) and (D) of paragraph (9) shall apply.
I.R.C. § 121(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.
I.R.C. § 121(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.
I.R.C. § 121(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 section) 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(6) in determining the holding period of such property) had been so owned and used.
(Added by Pub. L. 88-272, title II, 206(a), Feb. 26, 1964, 78 Stat. 38, and amended Pub. L. 94-455, title XIV, 1404(a), title XIX, 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1733, 1834; Pub. L. 95-600, title IV, 404(a)-(c)(2), Nov. 6, 1978, 92 Stat. 2869, 2870; Pub. L. 97-34, title I, 123(a), Aug. 13, 1981, 95 Stat. 197; Pub. L. 100-647, title VI, 6011(a), Nov. 10, 1988, 102 Stat. 3691; Pub. L. 105-34, title III, Sec. 312(a), Aug. 5, 1997, 111 Stat 788; Pub. L. 105-206, title VI, Sec. 6005(e), July 22, 1998, 112 Stat. 685; Pub. L. 107-16, title V, Sec. 542(c), June 7, 2001, 115 Stat. 38; Pub. L. 108-121, title I, Sec. 101(a), Nov. 11, 2003, 117 Stat. 1335; Pub. L. 108-357, title VIII, Sec. 840(a), Oct. 22, 2004, 118 Stat. 1418; Pub. L. 109-135, title IV, Sec. 402(a)(3), 403(ee), Dec. 21, 2005, 119 Stat. 2577; Pub. L. 109-432, div. A, title IV, Sec. 417, Dec. 20, 2006, 120 Stat. 2922; Pub. L. 110-142, Sec. 7(a), Dec. 20, 2007, 121 Stat. 1803; Pub. L. 110-172, Sec. 11(a)(11)(A), Dec. 29, 2007; Pub. L. 110-245, Sec. 110(a), 113, June 17, 2008, 122 Stat. 1624; Pub. L. 110-289, div. C, title III, Sec. 3092, July 30, 2008, 122 Stat. 2654; Pub. L. 111-312, title III, Sec. 301(a), Dec. 17, 2010, 124 Stat. 3296; Pub. L. 113-295, Div. A, title II, Sec. 212(c), 213(c)(1), 220(a)(20), Dec. 19, 2014, 128 Stat. 4010; Pub. L. 115-97, Sec. 11051(b)(3)(A)(i), (ii), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 - Subsec. (d)(3). Pub. L. 115-97, Sec. 11051(b)(3)(A)(i), (ii), amended par. (3) by striking ‘‘(as defined in section 71(b)(2))’’ in subparagraph (B), and adding subparagraph (C).
2014 - Subsec. (b)(3). Pub. L. 113-295, Div. A, Sec. 221(a)(20), amended par. (3) by striking “(A) In General.—” in subpar. (A) and moving the text to the left and by striking subpar. (B). Before being struck, subpar. (B) read as follows:
“(B) Pre-May 7, 1997, Sales Not Taken Into Account.— Subparagraph (A) shall be applied without regard to any sale or exchange before May 7, 1997.”
Subsec. (b)(4). Pub. L. 113-295, Div. A, Sec. 212(c), amended subsec. (b) by redesignating the second par. (4) as par. (5).
Subsec. (d)(12)(B). Pub. L. 113-295, Div. A, Sec. 213(c)(1), amended subpar. (B) by inserting “of paragraph (9)” after “and (D)”.
2010 - Subsec. (d)(11). Pub. L. 111-312, Sec. 301(a), amended subsec. (d) to read as it would read if subtitle E of title V of Pub. L. 107-16 had never been enacted. Subsec. (d)(11), as added by Pub. L. 107-16, Sec. 542(e)(1) (and later redesignated), would have read as follows:
“(11) Property Acquired From A Decedent.—The exclusion under this section shall apply to property sold by—
“(A) the estate of a decedent,
“(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and
“(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1)) established by the decedent,
determined by taking into account the ownership and use by the decedent.”
2008 - Subsec. (b)(4)[5]. Pub. L. 110-289, Sec. 3082(a), amended subsec. (b) by adding par. (4). Note that a par. (4) already exists.
Subsec. (d)(9)(C)(vi). Pub. L. 110-245, Sec. 113(b), amended subpar. (C) by striking clause (vi). Before being struck, it read as follows:
“(vi) Special Rule Relating To Intelligence Community—An employee of the intelligence community shall not be treated as serving on qualified extended duty unless such duty is at a duty station located outside the United States.”
Subsec. (d)(9)(E). Pub. L. 110-245, Sec. 113(a), amended par. (9) by striking subpar. (E). Before being struck, it read as follows:
“(E) Termination With Respect To Employees Of Intelligence Community—Clause (iii) of subparagraph (A) shall not apply with respect to any sale or exchange after December 31, 2010.”
Subsec. (d)(12). Pub. L. 110-245, Sec. 110(a), amended subsec. (d) by adding par. (12).
2007 - Subsec. (d)(9)(E). Pub. L. 110-172, Sec. 11(a)(11)(A), added subpar. (E).
Subsec. (b)(4). Pub. L. 110-142, Sec. 7(a), added par. (4).
2006 - Subsec. (d)(9). Pub. L. 109-432, Sec. 417(d), amended the heading of par. (9) by substituting “Uniformed Services, Foreign Service, and Intelligence Community” for “Members of the Uniformed Services and Foreign Service”.
Subsec. (d)(9)(A). Pub. L. 109-432, Sec. 417(a), amended subpar. (A) by substituting “duty-(i) as a member of the uniformed services, (ii) as a member of the Foreign Service of the United States, or (iii) as an employee of the intelligence community.” for “duty as a member of the uniformed services or of the Foreign Service of the United States.”
Subsec. (d)(9)(C)(iv)-(v). Pub. L. 109-432, Sec. 417(b), amended subpar. (C) by redesignating clause (iv) as clause (v) and by adding new clause (iv).
Subsec. (d)(9)(C)(vi). Pub. L. 109-432, Sec. 417(c), amended subpar. (C) by adding clause (vi).
2005 - Subsec. (d)(10)-(11). Pub. L. 109-135, Sec. 403(ee), amended subsec. (d) by redesignating par. (10) (relating to property acquired from a decedent) as par. (11) and by amending par. (10) (relating to property acquired in like-kind exchange). Before being amended, par. (10) read as follows:
“(10) PROPERTY ACQUIRED IN LIKE-KIND EXCHANGE-
“If a taxpayer acquired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or exchange of such property if it occurs during the 5-year period beginning with the date of the acquisition of such property.”
Subsec. (g). Pub. L. 109-135, Sec. 402(a)(3), amended subsec. (g) by substituting “1223(6)” for “1223(7)”.
2004 - Sec. 121(d)(10). Pub. L. 108-357, Sec. 840(a), added par. (10)
2003 - Subsec. (d)(9)-(10). Pub. L. 108-121, Sec. 101(a), redesignated par. (9) as par. (10) and added a new par. (9).
2001 - Subsec. (d)(9). Pub. L. 107-16, Sec. 542(c), added par. (9).
1998 - Subsec. (b)(2). Pub. L. 105-206, Sec. 6005(e)(1), amended par. (2). Prior to amendment it read as follows:
“(2) $500,000 limitation for certain joint returns.--
Paragraph (1) shall be applied by substituting ‘$500,000’ for ‘$250,000’ if--
“(A) a husband and wife make a joint return for the taxable year of the sale or exchange of the property,
“(B) either spouse meets the ownership requirements of subsection (a) with respect to such property,
“(C) both spouses meet the use requirements of subsection (a) with respect to such property, and
“(D) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3).”
Subsec. (c)(1). Pub. L. 105-206, Sec. 6005(e)(2), amended par. (1). Prior to amendment it read as follows:
“(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)(3) 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 under this section 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 to which subsection (a) applied and before the date of such sale or exchange,
bears to 2 years.”
1997 - Sec. 121. Pub. L. 105-34, Sec. 312(a), amended sec. 121. Prior to amendment it read as follows:
Sec. 121. One-time exclusion of gain from sale of principal residence by individual who has attained age 55
“(a) General rule
At the election of the taxpayer, gross income does not include gain from the sale or exchange of property if--
“(1) the taxpayer has attained the age of 55 before the date of such sale or exchange, and
“(2) 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 his principal residence for periods aggregating 3 years or more.
“(b) Limitations
“(1) Dollar limitation
The amount of the gain excluded from gross income under subsection (a) shall not exceed $125,000 ($62,500 in the case of a separate return by a married individual).
“(2) Application to only 1 sale or exchange
Subsection (a) shall not apply to any sale or exchange by the taxpayer if an election by the taxpayer or his spouse under subsection (a) with respect to any other sale or exchange is in effect.
“(3) Additional election if prior sale was made on or before July 26, 1978
In the case of any sale or exchange after July 26, 1978, this section shall be applied by not taking into account any election made with respect to a sale or exchange on or before such date.
“(c) Election
An election under subsection (a) may be made or revoked at any time before the expiration of the period for making a claim for credit or refund of the tax imposed by this chapter for the taxable year in which the sale or exchange occurred, and shall be made or evoked in such manner as the Secretary shall by regulations prescribe. In the case of a taxpayer who is married, an election under subsection (a) or a revocation thereof may be made only if his spouse joins in such election or revocation.
“(d) Special rules
“(1) Property held jointly by husband and wife
For purposes of this section, if--
“(A) property is held by a husband and wife as joint tenants, tenants by the entirety, or community property,
“(B) such husband and wife make a joint return under section 6013 for the taxable year of the sale or exchange, and
“(C) one spouse satisfies the age, holding, and use requirements of subsection (a) with respect to such property, then both husband and wife shall be treated as satisfying the age, holding, 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, if--
“(A) the deceased spouse (during the 5-year period ending on the date of the sale or exchange) satisfied the holding and use requirements of subsection (a)(2) with respect to such property, and
“(B) no election by the deceased spouse under subsection (a) is in effect with respect to a prior sale or exchange, then such individual shall be treated as satisfying the holding and use requirements of subsection (a)(2) with respect to such property.
“(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)(2) shall be applied to the holding of such stock, and
“(B) the use requirements of subsection (a)(2) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder.
“(4) Involuntary conversions
For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property.
“(5) Property used in part as principal residence
In the case of property only a portion of which, during the 5-year period ending on the date of the sale or exchange, has been owned and used by the taxpayer as his principal residence for periods aggregating 3 years or more, this section shall apply with respect to so much of the gain from the sale or exchange of such property as is determined, under regulations prescribed by the Secretary, to be attributable to the portion of the property so owned and used by the taxpayer.
“(6) 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.
“(7) Application of sections 1033 and 1034
In applying sections 1033 (relating to involuntary conversions) and 1034 (relating to sale or exchange of residence), 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 an election under this section.
“(8) Property acquired after involuntary conversion
If the basis of the property sold or exchanged is determined (in whole or in part) under subsection (b) of section 1033 (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.
“(9) 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)(2) 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.”
1988--Subsec. (d)(9). Pub. L. 100-647 added par. (9).
1981--Subsec. (b)(1). Pub. L. 97-34 substituted “$125,000 ($62,500” for “$100,000 ($50,000”.
1978--Pub. L. 95-600, 404(a), substituted “One-time exclusion of gain from sale of principal residence by individual who has attained age 55” for “Gain from sale or exchange of residence of individual who has attained age 65” in section catchline.
Subsec. (a). Pub. L. 95-600, 404(a), substituted “55” for “65”, “5-year" for “8-year”, and “3 years” for “5 years”.
Subsec. (b). Pub. L. 95-600, 404(a), in par. (1) substituted provisions respecting dollar limitations for amount of gain for provisions setting forth applicable limitations where the adjusted sales price exceeds $35,000 and added par. (3).
Subsec. (d)(2). Pub. L. 95-600, 404(c)(1), substituted “5-year period" for “8-year period”.
Subsec. (d)(5). Pub. L. 95-600, 404(c)(2), substituted “5-year period" for “8-year period” and “3 years” for “5 years”.
Subsec. (d)(8). Pub. L. 95-600, 404(b), added par. (8).
1976--Subsec. (b)(1). Pub. L. 94-455, 1404(a), substituted “$35,000” for “$20,000” in three places.
Subsecs. (c), (d)(5). Pub. L. 94-455, 1906(b)(13)(A), struck out “or his delegate" after “Secretary”.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Pub. L. 115-97, Sec. 11051(b)(3)(A)(i), (ii), effective for:
“(1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2018, and
“(2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification.”
EFFECTIVE DATE OF 2014 AMENDMENTS
Amendment by Pub. L. 113-295, Div. A, Sec. 212(c), effective as if included in the provision of the Housing Assistance Tax Act of 2008 [Pub. L. 110-289, Sec. 3092] to which it relates [Effective for sales and exchanges after December 31, 2008].
Amendment by Pub. L. 113-295, Div. A, Sec. 213(c)(1), effective as if included in the provision of the Heroes Earnings Assistance and Relief Tax Act of 2008 [Pub. L. 110-245, Sec. 110] to which it relates [Effective for taxable years beginning after December 31, 2007].
Amendments by Pub. L. 113-295, Div. A, Sec. 221(a)(20), effective on the date of the enactment of this Act [Enacted: Dec. 19, 2014].
Section 221(b)(2) of Pub. L. 113-295, Div. A, provided the following Savings Provision:
“(2) SAVINGS PROVISION.—If—
“(A) any provision amended or repealed by the amendments made by this section applied to—
“(i) any transaction occurring before the date of the enactment of this Act [Enacted: Dec. 19, 2014],
“(ii) any property acquired before such date of enactment, or
“(iii) any item of income, loss, deduction, or credit taken into account before such date of enactment, and
“(B) the treatment of such transaction, property, or item under such provision would (without regard to the amendments or repeals made by this section) affect the liability for tax for periods ending after date of enactment, nothing in the amendments or repeals made by this section shall be construed to affect the treatment of such transaction, property, or item for purposes of determining liability for tax for periods ending after such date of enactment.”
EFFECTIVE DATE OF 2010 AMENDMENT
Amendment by Sec. 301(a) of Pub. L. 111-312 effective for estates of decedents dying, and transfers made, after December 31, 2009. Section 304 of Pub. L. 111-312 provided the following sunset provision:
“SEC. 304. APPLICATION OF EGTRRA SUNSET TO THIS TITLE. Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall apply to the amendments made by this section.”
REINSTATEMENT OF ESTATE TAX; REPEAL OF CARRYOVER BASIS
Section 301 of Pub. L. 111-312 provided:
“(a) IN GENERAL.—Each provision of law amended by subtitle A or E of title V of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended to read as such provision would read if such subtitle had never been enacted.
“(b) CONFORMING AMENDMENT.—On and after January 1, 2011, paragraph (1) of section 2505(a) of the Internal Revenue Code of 1986 is amended to read as such paragraph would read if section 521(b)(2) of the Economic Growth and Tax Relief Reconciliation Act of 2001 had never been enacted.
“(c) SPECIAL ELECTION WITH RESPECT TO ESTATES OF DECEDENTS DYING IN 2010.—Notwithstanding subsection (a), in the case of an estate of a decedent dying after December 31, 2009, and before January 1, 2011, the executor (within the meaning of section 2203 of the Internal Revenue Code of 1986) may elect to apply such Code as though the amendments made by subsection (a) do not apply with respect to chapter 11 of such Code and with respect to property acquired or passing from such decedent (within the meaning of section 1014(b) of such Code). Such election shall be made at such time and in such manner as the Secretary of the Treasury or the Secretary's delegate shall provide. Such an election once made shall be revocable only with the consent of the Secretary of the Treasury or the Secretary's delegate. For purposes of section 2652(a)(1) of such Code, the determination of whether any property is subject to the tax imposed by such chapter 11 shall be made without regard to any election made under this subsection.
“(d) EXTENSION OF TIME FOR PERFORMING CERTAIN ACTS.—
“ (1) ESTATE TAX.—In the case of the estate of a decedent dying after December 31, 2009, and before the date of the enactment of this Act, the due date for—
“(A) filing any return under section 6018 of the Internal Revenue Codeof 1986 (including any election required to be made on such a return) as such section is in effect after the date of the enactment of this Act without regard to any election under subsection (c),
“(B) making any payment of tax under chapter 11 of such Code, and
“(C) making any disclaimer described in section 2518(b) of such Code of an interest in property passing by reason of the death of such decedent, shall not be earlier than the date which is 9 months after the date of the enactment of this Act.
“(2) GENERATION-SKIPPING TAX.—In the case of any generation-skipping transfer made after December 31, 2009, and before the date of the enactment of this Act, the due date for filing any return under section 2662 of the Internal Revenue Code of 1986 (including any election required to be made on such a return) shall not be earlier than the date which is 9 months after the date of the enactment of this Act.
“(e) EFFECTIVE DATE.—Except as otherwise provided in this section, the amendments made by this section shall apply to estates of decedents dying, and transfers made, after December 31, 2009.”
EFFECTIVE DATE OF 2008 AMENDMENTS
Amendment by Section 3092(a) of Pub. L. 110-289 effective for sales and exchanges after December 31, 2008.
Amendment by Section 110(a) of Pub. L. 110-245 effective for taxable years beginning after December 31, 2007.
Amendment by Section 113 of Pub. 110-245 effective for sales or exchanges after the date of the enactment of this Act [Enacted: June 17, 2008].
EFFECTIVE DATE OF 2007 AMENDMENTS
Amendment by Section 11(a)(11)(A) of Pub. L. 110-172 effective on the date of the enactment of this Act [Enacted: Dec. 29, 2007].
Amendment by Section 7(a) of Pub. 110-142 effective for sales or exchanges after December 31, 2007
EFFECTIVE DATE OF 2006 AMENDMENTS
Amendments by Section 417 of Pub. L. 109-432, as amended by Pub. L. 110-172, Sec. 11(a)(11)(B), effective for sales or exchanges after the date of the enactment of this Act [Enacted: Dec. 20, 2006].
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendment by Section 402(a)(3) of Pub. L. 109-135 effective as if included in the provisions of Energy Policy Act of 2005 [Pub. L. 109-58, Sec. 1263] to which it relates.
Amendments by Section 403(ee) effective as if included in the provisions of the American Jobs Creation Act of 2004 [Pub. L. 108-357, Sec. 840] to which they relate.
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendment by Section 840(a) of Pub. L. 108-357 effective for sales or exchanges after the date of the enactment of this Act [Enacted: Oct. 22, 2004].
EFFECTIVE DATE OF 2003 AMENDMENTS
Amendments by Section 101(a) of Pub. L. 108-121 applicable as if included in the amendments made by section 312 of the Taxpayer Relief Act of 1997.
Section 101(b)(2) provided that:
“(2) Waiver of Limitations.--If refund or credit of any overpayment of tax resulting from the amendments made by this section is prevented at any time before the close of the 1-year period beginning on the date of the enactment of this Act [Enacted: Nov. 11, 2003] by the operation of any law or rule of law (including res judicata), such refund or credit may nevertheless be made or allowed if claim therefor is filed before the close of such period.”
EFFECTIVE DATE OF 2001 AMENDMENTS
Amendment by Section 542(c) of Pub. L. 107-16 applicable to estates of decedents dying after December 31, 2009.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358 and Pub. L. 111-312, Sec. 101(a), and struck by Pub. L. 112-240, Sec. 101(a)(1) (effective for taxable, plan, or limitation years beginning after Dec. 31, 2012, and estates of decedents dying, gifts made, or generation skipping transfers after Dec. 31, 2012), provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1) to taxable, plan, or limitation years beginning after December 31, 2012, or
“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2012.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”
EFFECTIVE DATE OF 1998 AMENDMENTS
Amendment by Section 6005(e) of Pub. L. 105-206 effective as if included in the provisions of the Taxpayer Relief Act of 1997 to which it relates [Effective Date of Pub. L. 105-34, Sec. 312: Sales and exchanges after May 6, 1997, but see special rule below].
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Section 312(a) of Pub. L. 105-34, as amended by Pub. L. 105-206, Sec. 6005(e)(3), effective for sales and exchanges after May 6, 1997. Section 312(d)[e] of Pub. L. 105-34 provided the following special rules and exceptions:
“(2) Sales on or before date of enactment.--At the election of the taxpayer, the amendments made by this section shall not apply to any sale or exchange on or before the date of the enactment of this Act.
(3) Certain sales within 2 years after date of enactment.--Section 121 of the Internal Revenue Code of 1986 (as amended by this section) shall be applied without regard to subsection (c)(2)(B) thereof in the case of any sale or exchange of property during the 2-year period beginning on the date of the enactment of this Act if the taxpayer held such property on the date of the enactment of this Act and fails to meet the ownership and use requirements of subsection (a) thereof with respect to such property.
(4) Binding contracts.--At the election of the taxpayer, the amendments made by this section shall not apply to a sale or exchange after the date of the enactment of this Act, if--
(A) such sale or exchange is pursuant to a contract which was binding on such date, 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 or with respect to the acquisition of which by the taxpayer a binding contract was in effect on 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.”
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6011(b) of Pub. L. 100-647 provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to any sale or exchange after September 30, 1988, in taxable years ending after such date.”
EFFECTIVE DATE OF 1981 AMENDMENT
Section 123(b) of Pub. L. 97-34 provided that: “The amendment made by this section [amending this section] shall apply to residences sold or exchanged after July 20, 1981.”
EFFECTIVE DATE OF 1978 AMENDMENT
Section 404(d)(1) of Pub. L. 95-600 provided that: “The amendments made by this section [amending this section and sections 1033, 1034, 1038, 1250, and 6012 of this title] shall apply to sales or exchanges after July 26, 1978, in taxable years ending after such date.”
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1404(b) of Pub. L. 94-455 provided that: “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 1976.”
EFFECTIVE DATE
Section 206(c) of Pub. L. 88-272 provided that: “The amendments made by this section [enacting this section, redesignating former section 121 as 122, and amending sections 1033, 1034, and 6012 of this title] shall apply to dispositions after Dec. 31, 1963, in taxable years ending after such date.”
TRANSITIONAL RULE IN CASE OF SALE OR EXCHANGE OF RESIDENCE BEFORE JULY 26, 1981
Section 404(d)(2) of Pub. L. 95-600, as amended by Pub. L. 99-514, 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “In the case of a sale or exchange of a residence before July 26, 1981, a taxpayer who has attained age 65 on the date of such sale or exchange may elect to have section 121 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] applied by substituting ‘8-year period’ for ‘5-year period’ and ‘5 years’ for ‘3 years’ in subsections (a), (d)(2), and (d)(5) of such section.”
PRIOR PROVISIONS
A prior section 121 was renumbered section 136 of this title.