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Exclusion of Gain from Sale of Principal Residence: § 121

30 July, 2015 - 11:44

President George Bush II announced early in his presidency that he wanted America to be an “ownership society.” How would (does) widespread taxpayer ownership of private homes make America a better place? We have already examined imputed income derived from ownership of property – and that is most significant with regard to ownership of principal residences.

  • Read § 121.
    • What is the rule of § 121(a)?
    • Does § 121 promote an “ownership society” – or something else? Don’t forget that –
      • § 163(h) permits deduction of mortgage interest on up to $1,000,000 of indebtedness incurred to purchase a home or of interest on up to $100,000 of home equity indebtedness.
      • § 164(a)(1) permits a deduction for state and local, and foreign real property taxes.
  • Notice that § 121(b)(4)[(5)] and § 121(c) employ bifurcation ratios. Are the ratios what you expect them to be?


Do the CALI Lesson, Basic Federal Income Taxation: Property Transactions: Exclusion of Gain on the Sale of a Principal Residence.