[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 840 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 840

To amend the Internal Revenue Code of 1986 to provide an exemption from 
             tax for gain on sale of a principal residence.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              June 5, 1997

  Mr. Graham introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide an exemption from 
             tax for gain on sale of a principal residence.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Principal Residence Tax Exclusion 
Act of 1997''.

SEC. 2. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.

    (a) In General.--Section 121 of the Internal Revenue Code of 1986 
(relating to one-time exclusion of gain from sale of principal 
residence by individual who has attained age 55) is amended to read as 
follows:

``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    ``(a) Exclusion.--Gross income shall not include gain from the sale 
or exchange or property if, 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 the taxpayer's principal residence for periods aggregating 
2 years or more.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--The amount of gain excluded from 
        gross income under subsection (a) with respect to any sale or 
        exchange shall not exceed $250,000 ($500,000 in the case of a 
        joint return where both spouses meet the use requirement of 
        subsection (a)).
            ``(2) Application to only one sale or exchange every 2 
        years.--
                    ``(A) In general.--Subsection (a) shall not apply 
                to any sale or exchange by the taxpayer if, during the 
                2-year period ending on the date of such sale or 
                exchange, there was any other sale or exchange by the 
                taxpayer or his spouse to which subsection (a) applied.
                    ``(B) Premarriage sales by spouse not taken into 
                account.--If, but for this subparagraph, subsection (a) 
                would not apply to a sale or exchange by a married 
                individual by reason of a sale or exchange by such 
                individual's spouse before their marriage--
                            ``(i) subparagraph (A) shall be applied 
                        without regard to the sale or exchange by such 
                        individual's spouse, but
                            ``(ii) the amount of gain excluded from 
                        gross income under subsection (a) with respect 
                        to the sale or exchange by such individual 
                        shall not exceed $250,000.
                    ``(C) Pre-1997 sales not taken into account.--
                Subparagraph (A) shall be applied without regard to any 
                sale or exchange before January 1, 1997.
    ``(c) Exclusion for Taxpayers Failing To Meet Certain 
Requirements.--
            ``(1) In general.--In the case of a sale or exchange to 
        which this subsection applies, the ownership and use 
        requirements of subsection (a) shall not apply and subsection 
        (b)(2) shall not apply; but the amount of gain excluded from 
        gross income under subsection (a) with respect to such sale of 
exchange shall not exceed--
                    ``(A) the amount which bears the same ratio to the 
                amount which would be so excluded if such requirements 
                had been met, as
                    ``(B) the shorter of--
                            ``(i) the aggregate periods, during the 5-
                        year period ending on the date of such sale or 
                        exchange, such property has been owned and used 
                        by the taxpayer as the taxpayer's principal 
                        residence, or
                            ``(ii) the period after the date of the 
                        most recent prior sale or exchange by the 
                        taxpayer or his spouse to which subsection (a) 
                        applied and before the date of such sale or 
                        exchange,
                bears to 2 years.
            ``(2) Sales and exchanges to which subsection applies.--
        This subsection shall apply to any sale or exchange if--
                    ``(A) subsection (a) would not (but for this 
                subsection) apply to such sale or exchange by reason 
                of--
                            ``(i) a failure to meet the ownership and 
                        use requirements of subsection (a), or
                            ``(ii) subsection (b)(2), and
                    ``(B) such sale or exchange is by reason of a 
                change in place of employment, health, or other 
                unforeseen circumstances.
    ``(d) Special Rules.--
            ``(1) Joint returns.--For purposes of this section, if a 
        husband and wife make a joint return for the taxable year of 
        the sale or exchange or property, subsection (a) applies if 
        either spouse meets the ownership 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, the 
        period such unmarried individual owned such property shall 
        include the period such deceased spouse held such property 
        before death.
            ``(3) Tenant-stockholder in cooperative housing 
        corporation.--For purposes of this section, if the taxpayer 
        holds stock as a tenant-stock-holder (as defined in section 
        216) in a cooperative housing corporation (as defined in such 
        section), then--
                    ``(A) the holding requirements of subsection (a) 
                shall be applied to the holding of such stock, and
                    ``(B) the use requirements of subsection (a) shall 
                be applied to the house or apartment which the taxpayer 
                was entitled to occupy as such stockholder.
            ``(4) Involuntary conversions.--
                    ``(A) In general.--For purposes of this section, 
                the destruction, theft, seizure, requisition, or 
                condemnation of property shall be treated as the sale 
                of such property.
                    ``(B) Application of section 1033.--In applying 
                section 1033 (relating to involuntary conversions), 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 this section.
                    ``(C) Property acquired after involuntary 
                conversion.--If the basis of the property sold or 
                exchanged is determined (in whole or in part) under 
                section 1033(b) (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.
            ``(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 2 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 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) 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.
            ``(7) 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.
    ``(e) Denial of Exclusion for Expatriates.--This section shall not 
apply to any sale or exchange by an individual if the treatment 
provided by section 877(a)(1) applies to such individual.
    ``(f) Election To Have Section Not Apply.--This section shall not 
apply to any sale or exchange with respect to which the taxpayer elects 
not to have this section apply.
    ``(g) Residences Acquired in Rollovers Under Section 1034.--For 
purposes of this section, in the case of property the acquisition of 
which by the taxpayer resulted under section 1034 (as in effect on the 
day before the date of the enactment of this sentence) in the 
nonrecognition of any part of the gain realized on the sale or exchange 
of another residence, in determining the period for which the taxpayer 
has owned and used such property as the taxpayer's principal residence, 
there shall be included the aggregate periods for which such other 
residence (and each prior residence taken into account under section 
1223(7) in determining the holding period of such property) had been so 
owned and used.''
    (b) Repeal of Nonrecognition of Gain on Rollover of Principal 
Residence.--Section 1034 of such Code (relating to rollover of gain on 
sale of principal residence) is hereby repealed.
    (c) Conforming Amendments.--
            (1) The following provisions of the Internal Revenue Code 
        of 1986 are each amended by striking ``section 1034'' and 
        inserting ``section 121'': sections 25(e)(7), 56(e)(1)(A), 
        56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 
        280A(d)(4)(A), 464(f)(3)(B)(i), 1033(k)(3), 1274(c)(3)(B), 
        6334(a)(13), and 7872(f)(11)(A).
            (2) Paragraph (4) of section 32(c) of such Code is amended 
        by striking ``(as defined in section 1034(h)(3))'' and by 
        adding at the end the following new sentence: ``For purposes of 
        the preceding sentence, the term `extended active duty' means 
        any period of active duty pursuant to a call or order to such 
        duty for a period in excess of 90 days or for an indefinite 
        period.''
            (3) Subparagraph (A) of 143(m)(6) of such Code is amended 
        by inserting ``(as in effect on the day before the date of the 
        enactment of the Principal Residence Tax Exclusion Act of 
        1997)'' after ``1034(e)''.
            (4) Subsection (e) of section 216 of such Code is amended 
        by striking ``such exchange qualifies for nonrecognition of 
        gain under section 1034(f)'' and inserting ``such dwelling unit 
        is used as his principal residence (within the meaning of 
        section 121)''.
            (5) Section 512(a)(3)(D) of such Code is amended by 
        inserting ``(as in effect on the day before the date of the 
        enactment of the Principal Residence Tax Exclusion Act of 
        1997)'' after ``1034''.
            (6) Paragraph (7) of section 1016(a) of such Code is 
        amended by inserting ``(as in effect on the day before the date 
        of the enactment of the Principal Residence Tax Exclusion Act 
        of 1997)'' after ``1034'' and by inserting ``(as so in 
        effect)'' after ``1034(e)''.
            (7) Paragraph (3) of section 1033(k) of such Code is 
        amended to read as follows:
            ``(3) For exclusion from gross income of gain from 
        involuntary conversion of principal residence, see section 
        121.''
            (8) Subsection (e) of section 1038 of such Code is amended 
        to read as follows:
    ``(e) Principal Residences.--If--
            ``(1) subsection (a) applies to a reacquisition of real 
        property with respect to the sale of which gain was not 
        recognized under section 121 (relating to gain on sale of 
        principal residence); and
            ``(2) within 1 year after the date of the reacquisition of 
        such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsection (b), 
(c), and (d) of this section shall not apply to the reacquisition of 
such property and, for purposes of applying section 121, the resale of 
such property shall be treated as a part of the transaction 
constituting the original sale of such property.''
            (9) Paragraph (7) of section 1223 of such Code is amended 
        by inserting ``(as in effect on the day before the date of the 
        enactment of the Principal Residence Tax Exclusion Act of 
        1997)'' after ``1034''.
            (10) Paragraph (7) of section 1250(d) of such Code is 
        amended to read as follows:
            ``(7) Disposition of principal residence.--Subsection (a) 
        shall not apply to a disposition of property to the extent used 
        by the taxpayer as his principal residence (within the meaning 
        of section 121, relating to gain on sale of principal 
        residence).''
            (11) Subsection (c) of section 6012 of such Code is amended 
        by striking ``(relating to one-time exclusion of gain from sale 
        of principal residence by individual who has attained age 55)'' 
        and inserting ``(relating to gain from sale of principal 
        residence)''.
            (12) Paragraph (2) of section 6212(c) of such Code is 
        amended by striking subparagraph (C) and by redesignating the 
        succeeding subparagraphs accordingly.
            (13) Section 6504 of such Code is amended by striking 
        paragraph (4) and by redesignating the succeeding paragraphs 
        accordingly.
            (14) The item relating to section 121 in the table of 
        sections for part III of subchapter B of chapter 1 of such Code 
        is amended to read as follows:

                              ``Sec. 121. Exclusion of gain from sale 
                                        of principal residence.''
            (15) The table of sections for part III of subchapter O of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1034.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to sales and exchanges after December 31, 1996.
            (2) Binding contracts, etc.--At the election of the 
        taxpayer, the amendments made by this section shall not apply 
        to a sale or exchange after December 31, 1996, if--
                    (A) such sale or exchange is pursuant to a contract 
                which was binding on December 31, 1996, and at all 
                times before such sale or exchange, or
                    (B) without regard to such amendments, gain would 
                not be recognized under section 1034 of the Internal 
                Revenue Code of 1986 (as in effect on the day before 
                the date of the enactment of this Act) on such sale or 
                exchange by reason of a new residence acquired on or 
                before such date.
        This paragraph shall not apply to any sale or exchange by an 
        individual if the treatment provided by section 877(a)(1) of 
        the Internal Revenue Code of 1986 applies to such individual.
                                 <all>