§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.

(Added Pub. L. 88–272, title II, §206(a), Feb. 26, 1964, 78 Stat. 38 ; 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 .)

Prior Provisions

A prior section 121 was renumbered section 137 of this title.

Amendments

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 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."

Section Referred to in Other Sections

This section is referred to in sections 1034, 1038, 1250, 6012 of this title.