Rev. Rul. 84-43

1984-1 C.B. 27, 1984-13 I.R.B. 5.

                       Internal Revenue Service
                                 Revenue Ruling

                  PRINCIPAL RESIDENCE;  SALE OF A LIFE ESTATE

                           Published: March 26, 1984

Section 121. - -One-Time Exclusion of Gain from Sale of Principal Residence by Individual Who Has Attained Age 55, 26 CFR 1.121-1:  Gain from sale or exchange of residence of individual who has attained age 55.

  Principal residence;  sale of a life estate.  The sale of a life estate in a principal residence qualifies under the provisions of section 121 of the Code, relating to the one-time exclusion of gain from the sale of a principal residence by a taxpayer over the age of 55, if the life estate is the taxpayer's entire interest in the residence.

ISSUE

  Under the circumstances described below, may B, an individual taxpayer, elect, under section 121 of the Internal Revenue Code, to exclude from gross income gain from the sale of a life estate in a principal residence?

FACTS

  In 1982, B (60 years of age) sold a life estate in a residence that B had used as a principal residence for ten years.  B's life estate was B's entire interest in the residence.

LAW AND ANALYSIS

  Section 121(a) of the Code provides that, 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 age 55 before the date of the sale or exchange, and (2) during the 5-year period ending on the date of the sale or exchange, the property has been owned and used by the taxpayer as the taxpayer's principal residence for periods aggregating 3 years or more.  Under section 121(b), the amount of gain excluded from gross income may not exceed $125,000 ($100,000 for a sale or exchange before July 21, 1981).

  The House of Representatives Committee Report, H.R.Rep. No. 749, 88th Cong., 1st Sess. (1963), 1964-1 (Part 2) C.B. 125, 169, pertaining to section 121 of the Code, states as follows:

  While present law generally provides adequately for the younger individual who is for one reason or another changing residences, it does not do so for the elderly person whose family has grown and who no longer has need for the family homestead.  Such an individual may desire to purchase a less expensive home or move to an apartment or to a rental property at another location.  He may also require some or all of the funds obtained from the sale of the old residence to meet his and his wife's living expenses.  Nevertheless, under present law, such an individual must tie up all of his investment from the old residence in a new residence, if he is to avoid taxation on any of the gain which may be involved.

  Your committee concluded that this is an undesirable burden on our elderly taxpayers.

  The Report further states, at paragraph 6(c)(ii)(3), that for purposes of this provision, tenant-stockholders in a cooperative housing corporation who sell their right to occupy the house or apartment are to be treated in the same manner for purposes of this provision as those who own their residence outright.  See also section 121(d)(3) of the Code.

  Section 121 of the Code, the regulations thereunder, and the legislative history contemplate that the section is to apply in the situation when an elderly taxpayer disposes of the taxpayer's entire interest (legal and equitable) in a principal residence.  It is not necessary that the taxpayer own the entire fee interest in such residence.

HOLDING

  B may elect, under section 121 of the Code, to exclude from gross income up to $125,000 gain from the sale of B's life estate in B's principal residence.

Rev. Rul. 84-43, 1984-1 C.B. 27, 1984-13 I.R.B. 5.