Snowa v. Commissioner
Opinion
*331 Decision will be entered for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PARKER,
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year before the Court, and all Rule references are to the Tax Court Rules of Practice and Procedure.
The issue to be decided is whether recognition of any portion of the gain from the sale of petitioner's principal residence in 1989 is deferred under
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
At the time the petition was filed, petitioner Jeanne Greene Snowa resided in Jamestown, North Carolina. On November 15, 1989, petitioner and her ex-husband, Willis I. Spivey (Mr. Spivey), sold their jointly owned home located in the Richland Community in South Carolina (the Richland residence or petitioner's old residence) for the sale price of $ 380,000. Petitioner*332 and Mr. Spivey paid closing costs on the sale of the Richland residence in the amount of $ 25,218.41, of which $ 1,331.41 was attributable to property taxes.
A portion of the purchase price was paid by a transfer from the purchaser to the sellers of lots valued at $ 130,000. The balance of the purchase price was paid in cash. The cash received was applied to pay off a first mortgage in the amount of $ 97,794.42 and another debt in the amount of $ 28,928.36. The net cash proceeds remaining after payment of the closing costs, mortgage, and other debt equaled $ 98,058.81.
Petitioner and Mr. Spivey were divorced in 1989 about the time of the sale of their Richland residence. Petitioner filed her 1989 Federal income tax return as a single individual. On Form 2119 attached to her 1989 Federal income tax return, petitioner reported her one-half share of the proceeds and gain from the sale of the Richland residence as follows:
| Selling price | $ 190,000 |
| Expense of sale 1 | (11,944) |
| Amount realized | $ 178,056 |
| Basis of home | (108,538) |
| Gain on sale | $ 69,518 |
*333 On the Form 2119, petitioner reported that she intended to replace the residence and, therefore, did not recognize the gain in 1989.
On November 16, 1989, petitioner purchased a home located at 511 Horseshoe Drive in Seneca, South Carolina (the Seneca house) for $ 85,000. Petitioner paid cash for the Seneca house with proceeds she received from the sale of the Richland residence. The Seneca house was sold on May 29, 1991, and was not a replacement residence within the meaning of
During 1991, petitioner married Henry Lin Snowa (Mr. Snowa). On March 14, 1991, petitioner and Mr. Snowa purchased a residence located at 4703 Weston Place in Jamestown, North Carolina (the Jamestown residence or petitioner's new residence). The contract sales price of the Jamestown residence was $ 177,250. In addition, petitioner and Mr. Snowa incurred $ 2,107.85 in closing costs. The purchase price and the closing costs totaled $ 179,357.85 ($ 177,250 + $ 2,107.85). Petitioner and Mr. Snowa were*334 credited with $ 163.17 for payment of local taxes. The balance of the purchase price and closing costs was paid with $ 17,725 of earnest money, $ 76,469.68 in cash at closing, and a mortgage of $ 85,000. 2 The purchase price, closing costs, and other expenses resulted in a total cost of $ 180,668 to petitioner and Mr. Snowa for the Jamestown residence. Petitioner and Mr. Snowa were jointly and severally liable for the $ 85,000 mortgage, and the Jamestown residence was titled jointly in the names of petitioner and Mr. Snowa.
On Form 2119 attached to their 1991 joint Federal income tax return, petitioner and Mr. Snowa*335 reported the purchase of the Jamestown residence as replacement of the Richland residence. They reported a total cost of $ 180,668 for the Jamestown residence, which exceeded the $ 178,056 reported as petitioner's amount realized on the sale of the Richland residence. A worksheet computing the adjusted basis of the Jamestown residence was attached to the return. The following statement, signed by petitioner and Mr. Snowa, appeared on the worksheet: "We agree to reduce the basis of the new home by the gain from selling the old home."
On audit respondent determined that petitioner's share of the cost of the new residence was $ 90,334 ($ 180,668 / 2), and therefore her cost of the new residence was less than her share of the adjusted sales price of the old residence ($ 178,056), and therefore the gain on the sale of the old residence ($ 69,518) must be recognized as a taxable gain for the 1989 taxable year.
OPINION
Generally, sections 1001 and 61 require a taxpayer to recognize in the year of the sale gain realized on the sale of property.
*337 Generally, the taxpayer must own both the old and the new residence, and the requirement that the taxpayer purchase the new residence is not satisfied if someone other than the taxpayer takes title to the new residence.
In the case where a husband and wife sell their principal residence and timely purchase a new principal residence, (g) Husband and Wife. -- If the taxpayer and his spouse, in accordance with regulations which shall be prescribed by the Secretary pursuant to this subsection, consent to the application of paragraph (2) of this subsection, then -- (1) for purposes of this section -- (A) the taxpayer's adjusted sales price of the old residence is the adjusted sales price (of the taxpayer, or of the taxpayer and his spouse) of the old residence, and (B) the taxpayer's cost of purchasing the new residence is the cost (to the taxpayer, his spouse, or both) of purchasing the new residence (whether held by the taxpayer, his spouse, or the taxpayer and his spouse); and (2) so much of the gain on the sale of the old residence as is not recognized solely by reason of this subsection, and so much of the adjustment under subsection (e) to the basis of the new residence as results solely from this subsection shall be allocated between the taxpayer and his spouse as provided in such regulations.
Petitioner argues that, since she and Mr. Snowa agreed to reduce the basis in the Jamestown residence by the amount of petitioner's gain from the sale of the Richland residence,
Petitioner contends that (f)
*341 Despite the flush language of
*342 Petitioner also claims that Publication 523, Tax Information on Selling Your Home, for use in preparing 1991 returns, also supports her position. The publication, however, states: You or your spouse may have owned the old home separately, but title to the new one is in both your names as joint tenants. * * * In these cases, the gain from the sale of the old home can be postponed. The postponed gain, which reduces the basis of the new home, can be divided between you and your spouse if 1) You used the old home as your main home and you use the new home as your main home. * * * [Emphasis added.]
Petitioner's situation here is more akin to that where two individuals sell their separate old principal residences and then marry and purchase a new principal residence together. Publication 523 gives the following explanation and example: Each spouse must individually satisfy the requirements for postponing gain. Each spouse's share of the cost of the new home must be equal to or greater than the adjusted sales price of his or her old home. There is tax on $ 10,000 of your spouse's gain at the time of the sale, the amount by which the adjusted sales price of her former home is more than her $ 100,000 share of the cost of the replacement home.
Thus, petitioner may defer the recognition of her gain on the sale of the Richland residence only if she satisfies the requirements of The taxpayer's cost of purchasing the new residence includes not only cash but also any indebtedness*345 to which the property purchased is subject at the time of purchase whether or not assumed by the taxpayer (including purchase-money mortgages, etc.) and the face amount of any liabilities of the taxpayer which are part of the consideration for the purchase. Commissions and other purchasing expenses paid or incurred by the taxpayer on the purchase of the new residence are to be included in determining such cost. * * *
Respondent determined that petitioner's cost of purchasing her*346 interest in the Jamestown residence was $ 90,334, one-half of the total cost of $ 180,668. Respondent's determination is presumed correct, and petitioner bears the burden of proving otherwise. Rule 142(a);
Petitioner argues, however, that the entire amount of the mortgage should be included in her cost because the lender could require her to pay the full amount of the debt. Petitioner fails to recognize that, although the lender could enforce the obligation against one of the joint and several debtors, in such event, the debtor who pays the debt would have the right to seek contribution from the nonpaying debtor.
Petitioner argues that she took legal title to the new residence, and made*347 the mortgage, jointly with Mr. Snowa in order to avoid the unnecessary expense of documenting two transfers. Petitioner contends that she could have acquired the property in her name only, with or without Mr. Snowa as a guarantor of the mortgage, and could have subsequently transferred an interest in the property to her husband. 7 She contends that, in such case, she would have obtained the full benefit of nonrecognition under
*348 Petitioner's adjusted sales price for her half interest in the Richland residence was $ 178,056 and her cost of purchasing her half interest in the Jamestown residence was $ 90,334. Since the difference, $ 87,722, exceeds the amount of her gain, $ 69,518, none of the gain is deferred under
Based on the foregoing,
Footnotes
1. The closing costs were properly reduced by the amount of the property taxes and divided by 2 in arriving at the expense of sale ($ 25,218.41 - $ 1,331.41 = $ 23,887 / 2 = $ 11,943.50).↩
1. See
sec. 1034(c)(4)↩ .2. Although the Seneca residence was sold after the closing date of the purchase of the Jamestown residence, the parties have stipulated that petitioner used the proceeds from the sale of the Seneca residence to purchase the Jamestown residence. The record does not establish the amount of the proceeds from the sale of the Seneca residence that was available for the purchase of the Jamestown residence.↩
3. The replacement period begins 2 years before and ends 2 years after the sale of the old residence.
Sec. 1034(a)↩ .4. Petitioner also makes a semantical argument that "same spouse" does not mean the very same or the selfsame spouse, but means only alike in kind, quality or degree. However, we do not think that Congress intended to treat spouses as fungible goods.↩
5. The sources of authoritative law in the tax field are the statute and regulations and not informal publications and tax forms.
Dixon v. United States , 381 U.S. 68, 73 (1965)Adler v. Commissioner , 330 F.2d 91, 93 (9th Cir. 1964)T.C. Memo. 1963-196 ;Zimmerman v. Commissioner , 71 T.C. 367, 371 (1978)614 F.2d 1294 (2d Cir. 1979) ;Green v. Commissioner , 59 T.C. 456, 458↩ (1972)6. Petitioner stipulated that her share of the proceeds from the sale of the Richland residence was $ 178,056 (one-half of the adjusted sales price of $ 356,112). In her answering brief, petitioner asserted for the first time that her share of the proceeds from the sale of the Richland residence was limited to the net cash proceeds or $ 98,058.81. That assertion is contrary to the parties' stipulation and fails to take into account petitioner's share of the expenses, mortgage, and other debt satisfied with the remainder of the cash paid.↩
7. In such a case, however, petitioner would have to show that any money paid by Mr. Snowa for the property was a gift or a loan of the money to petitioner, and that she was not legally obligated to transfer the interest to Mr. Snowa. Furthermore, if Mr. Snowa were merely a guarantor of the mortgage, petitioner would have borne the entire burden of the liability. In the event the lender were to collect from Mr. Snowa as a guarantor, Mr. Snowa would have the right to recover the full amount from petitioner.
N.C. Gen. Stat. sec. 26-3.1↩ (1986). Therefore, in such a situation, petitioner's cost of the new residence would have included the entire amount of the loan.
Case-law data current through December 31, 2025. Source: CourtListener bulk data.