Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 55-37

1955-1 C.B. 347

Sec. 1034

IRS Headnote

Gain from the sale of a taxpayer's residence does not come within the purview of section 112(n) of the Internal Revenue Code of 1939 where the proceeds of the sale are reinvested in a home in which she has no legal interest, but to which her daughter, who contributed part of the purchase money, holds title. Any gain realized from the sale of the residence will be recognized and subject to Federal income tax under the capital gain provisions of the Code.

Full Text

Rev. Rul. 55-37

Advice has been requested whether gain from the sale of a taxpayer's old residence comes within the purview of section 112(n) of the Internal Revenue Code of 1939 where the new residence in which she invests the proceeds from the sale of her home is not purchased in her name.

The taxpayer sold her principal residence which she owned and the proceeds were used to build a new residence on land belonging to a college which employs her daughter. The daughter supports the taxpayer and furnished the additional funds necessary over the amount received from the sale of the old residence in order to build the new residence. The taxpayer may occupy the new residence as long as she lives, but title thereto is necessarily held by the daughter as an employee of the college, which gave the daughter permission to erect the residence on its property. The residence will ultimately become the property of the college.

Section 112 of the Internal Revenue Code of 1939 provides in part as follows:

(n) GAIN FROM SALE OR EXCHANGE OF RESIDENCE-

(1) NONRECOGNITION OF GAIN.-If property (hereinafter in the subsection called `old residence') used by the taxpayer as his principal residence is sold by him and, within a period beginning one year prior to the date of such sale and ending one year after such date, property (hereinafter in this subsection called `new residence') is purchased and used by the taxpayer as his principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's selling price of the old residence exceeds the taxpayer's cost of purchasing the new residence.

The purpose of section 112(n) of the Code is to defer recognition of all or a part of the gain realized from the sale of the `old residence' to a future taxable event. This is accomplished under section 112(n) by deducting from the basis of the `new residence' the nonrecognized gain realized from the sale of the `old residence,' and using this adjusted basis in computing the taxable gain, if any, upon the subsequent sale or exchange of the `new residence.'

The provisions of this law are applicable to any taxpayer selling a principal residence at a gain, and relief may be obtained only where the requirements of this section are met. There are no provisions in the law whereby the taxpayer may reinvest the proceeds from the sale of her home in the home of another taxpayer without recognition for Federal income tax purposes of the gain realized from such sale.

Accordingly, it is held that gain from the sale of a taxpayer's residence does not come within the purview of section 112(n) of the Internal Revenue Code where the proceeds of the sale are reinvested in a home in which she has no legal interest but to which her daughter holds title. Any gain realized from the sale of the residence will be recognized and subject to Federal income tax under the capital gain provisions of the Code