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TITLE 26-INTERNAL REVENUE CODE as an Effective Date note under section 121 of this title. En-zcrxvE DATE OF 1958 AmENDMENT Amendment of subsec. (a)(2) by Pub. L. 85-866, and subsecs. (g), (h) and (i)(3) of this section, applicable to taxable years beginning after Dec. 31, 1953, and ending after Aug. 16, 1954, see section 1(c) of Pub. L. 85-866, set out as an Effective Date of 1958 Amend- ment note under section 165 of this title. EFFcTivE DATE OF 1956 AmENDMENT Section 5(b) of act June 29, 1956, provided that: "The amendment made by this section (adding subsee. (f)] shall apply with respect to taxable years ending after December 31, 1955, but only in the case of sales and exchanges of livestock after December 31, 1955." CRoss REFERENcES Gain from sale or exchange to effectuate policies of F. C. C., see section 1071 of this title. Gain or loss from involuntary conversion, see section 1231 of this title. Holding period of property, see section 1223 of this title, SEcTION REFERRED TO IN OTHER SEcTIONS This section is referred to in sections 44, 48, 121, 381, 1071. 1223, 1245, 1250, 1251, 1351, 6212, 6504 of this title. § 1034. Sale or exchange of residence (a) Nonrecognition of gain If property (in this section called "old resi- dence") used by the taxpayer as his principal residence is sold by him and, within a period be- ginning 18 months before the date of such sale and ending 18 months after such date, property (in this section called "new residence") is pur- chased and used by the taxpayer as his princi- pal residence, gain (if any) from such sale shall be recognized only to the extent that the tax- payer's adjusted sales price (as defined in sub- section (b)) of the old residence exceeds the taxpayer's cost of purchasing the new resi- dence. (b) Adjusted sales price defined (1) In general For purposes of this section, the term "ad- justed sales price" means the amount real- ized, reduced by the aggregate of the ex- penses for work performed on the old resi- dence in order to assist in its sale. (2) Limitations The reduction provided in paragraph (1) ap- plies only to expenses- (A) for work performed during the 90-day period ending on the day on which the con- tract to sell the old residence is entered into; (B) which are paid on or before the 30th day after the date of the sale of the old resi- dence; and (C) which are- (i) not allowable as deductions in com- puting taxable income under section 63(a) (defining taxable income), and (ii) not taken into account in computing the amount realized from the sale of the old residence. (c) Rules for application of section For purposes of this section: (1) An exchange by the taxpayer of his resi- dence for other property shall be treated as a sale of such residence, and the acquisition of a residence on the exchange of property shall be treated as a purchase of such residence. (2) A residence any part of which was con- structed or reconstructed by the taxpayer shall be treated as purchased by the taxpay- er. In determining the taxpayer's cost of pur- chasing a residence, there shall be included only so much of his cost as is attributable to the acquisition, construction, reconstruction, and improvements made which are properly chargeable to capital account, during the period specified in subsection (a). (3) If a residence is purchased by the tax- payer before the date of his sale of the old residence, the purchased residence shall not be treated as his new residence if sold or oth- erwise disposed of by him before the date of the sale of the old residence. (4) If the taxpayer, during the period de- scribed in subsection (a), purchases more than one residence which is used by him as his principal residence at .ome time within 18 months after the date of the sale of the old residence, only the last of such residences so used by him after the date of such sale shall constitute the new residence. (5) In the case of a new residence the con- struction of which was commenced by the taxpayer before the expiration of 18 months after the date of the sale of the old residence, the period specified in subsection (a), and the 18 months referred to in paragraph (4) of this subsection, shall be treated as including a period of 2 years beginning with the date of the sale of the old residence. (d) Limitation Subsection (a) shall not apply with respect to the sale of the taxpayer's residence if within 18 months before the date of such sale the taxpay- er sold at a gain other property used by him as his principal residence, and any part of such gain was not recognized by reason of subsection (a). (e) Basis of new residence Where the purchase of a new residence re- sults, under subsection (a) or under section 112 (n) of the Internal Revenue Code of 1939, in the nonrecognition of gain on the sale of an old residence, in determining the adjusted basis of the new residence as of any time following the sale of the old residence, the adjustments to basis shall include a reduction by an amount equal to the amount of the gain not so recog- nized on the sale of the old residence. For this purpose, the amount of the gain not so recog- nized on the sale of the old residence includes only so much of such gain as is not recognized by reason of the cost, up to such time, of pur- chasing the new residence. (f) Tenant-stockholder in a cooperative housing cor- poration For purposes of this section, section 1016 (re- lating to adjustments to basis), and section 1223 (relating to holding period), references to prop- erty used by the taxpayer as his principal resi- dence, and references to the residence of a tax- payer, shall include stock held by a tenant- stockholder (as defined in section 216, relating Page 649 § 1034