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Sale or Exchange of a Principal Residence


The sale or exchange of a principal residence, also known as section 1034 of the IRS Code allows a homeowner to defer the gain from a personal residence into the replacement home as long as the taxpayer meets certain requirements.

However, most homeowners don't take full advantage of all the adjustments in order to keep the gain as low as possible. If the truth were known, most people's records are so poor that when the time comes to recognize the gain, the calculations probably have to be based on estimates instead of actual numbers.

Rules for Sale or Exchange of Principal Residence
    1) qualifying home must be your principal residence

    2) replacement home must be built or bought within two years prior or following the settlement of the previous home

    3) to defer the entire gain, the replacement property must cost more than the adjusted basis in the home being sold

    4) there can be no more than two principal residences in a two year period


For additional information, a taxpayer may see IRS Publication 523. Form 2119 must be filed with taxpayer's regular income tax return in the year of the sale.

A complimentary copy of the Homeowner's Tax Worksheet, complete with instructions is available on request by contacting GEORGE IRVIN, CRS, CRB.

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