26 U.S.C. § 121 — Exclusion of gain from sale of principal

Page 574 TITLE 26—INTERNAL REVENUE CODE [§ 120 election of prior law, see section 209 of Pub. L. 95–615, set out as a note under section 911 of this title. STATUTE OF LIMITATIONS Pub. L. 96–605, title I, § 107(b), Dec. 28, 1980, 94 Stat. 3524, provided that: ‘‘In the case of any allowance re- ceived during calendar year 1974, 1975, 1976, or 1977, sub- sections (a)(2) and (e) of such section 3 [section 3 of Pub. L. 95–427, set out below] shall be applied by sub- stituting the date one year after the date of the enact- ment of this Act [Dec. 28, 1980] for ‘April 15, 1979’ each place it appears.’’ TREATMENT OF CERTAIN STATUTORY SUBSISTENCE AL- LOWANCES OR SUBSISTENCE ALLOWANCES NEGOTIATED IN ACCORDANCE WITH STATE LAW RECEIVED BY STATE POLICE OFFICERS BEFORE JANUARY 1, 1978 Pub. L. 95–427, § 3, Oct. 7, 1978, 92 Stat. 996, as amended by Pub. L. 96–605, title I, § 107(a), Dec. 28, 1980, 94 Stat. 3524; Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, pro- vided that: ‘‘(a) GENERAL RULE.—If— ‘‘(1) an individual who was employed as a State po- lice officer received a statutory subsistence allow- ance or a subsistence allowance negotiated in accord- ance with State law while so employed, ‘‘(2) such individual elects, on or before April 15, 1979, and in such manner and form as the Secretary of the Treasury may prescribe, to have this section apply to such allowance, and ‘‘(3) this section applies to such allowance, then, for purposes of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], such allowance shall not be in- cluded in such individual’s gross income. ‘‘(b) ALLOWANCES TO WHICH SECTION APPLIES.—For purposes of this section, this section applies to any statutory subsistence allowance or subsistence allow- ance negotiated in accordance with State law which was received— ‘‘(1) after December 31, 1969, and before January 1, 1974, to the extent such individual did not include such allowance in gross income on his income tax re- turn for the taxable year in which such allowance was received, or ‘‘(2) during the calendar year 1974, 1975, 1976, or 1977. ‘‘(c) OTHER DEFINITIONS.—For purposes of this sec- tion— ‘‘(1) STATE POLICE OFFICER.—The term ‘State police officer’ means any police officer (including a highway patrolman) employed by a State (or the District of Columbia) on a full-time basis with the power to ar- rest. ‘‘(2) INCOME TAX RETURN.—The term ‘income tax re- turn’ means the return of the taxes imposed by sub- title A of the Internal Revenue Code of 1986. If an in- dividual filed before November 29, 1977, an amended return for any taxable year, such amended return shall be treated as the return for such taxable year. ‘‘(d) LIMITATION ON DEDUCTION.—If any individual re- ceives a subsistence allowance which is excluded from gross income under subsection (a), no deduction shall be allowed under any provision of chapter 1 of the In- ternal Revenue Code of 1986 for expenses in respect of which he has received such allowance, except to the ex- tent that such expenses exceed the amount excludable from gross income under subsection (a) and the excess is otherwise allowed as a deduction under such chapter 1. ‘‘(e) STATUTE OF LIMITATIONS.—If refund or credit of any overpayment of tax resulting from the application of this section is prevented at any time on or before April 15, 1979, by the operation of any law or rule of law (including res judicata), refund or credit of such over- payment (to the extent attributable to the application of this section) may, nevertheless, be made or allowed if claim therefor is filed on or before April 15, 1979.’’ [§ 120. Repealed. Pub. L. 113–295, div. A, title II, § 221(a)(19)(A), Dec. 19, 2014, 128 Stat. 4039] Section, added Pub. L. 94–455, title XXI, § 2134(a), Oct. 4, 1976, 90 Stat. 1926; amended Pub. L. 97–34, title VIII, § 802(a), Aug. 13, 1981, 95 Stat. 349; Pub. L. 97–448, title I, § 108(a), Jan. 12, 1983, 96 Stat. 2391; Pub. L. 98–612, § 1(a), (b)(3)(A), Oct. 31, 1984, 98 Stat. 3180, 3181; Pub. L. 99–514, title XI, §§ 1114(b)(3), 1151(c)(3), (g)(1), 1162(b), Oct. 22, 1986, 100 Stat. 2450, 2503, 2506, 2510; Pub. L. 100–647, title I, § 1011B(a)(31)(B), title IV, § 4002(a), (b)(1), Nov. 10, 1988, 102 Stat. 3488, 3643; Pub. L. 101–140, title II, § 203(a)(1), (2), Nov. 8, 1989, 103 Stat. 830; Pub. L. 101–239, title VII, § 7102(a)(1), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101–508, title XI, § 11404(a), Nov. 5, 1990, 104 Stat. 1388–473; Pub. L. 102–227, title I, § 104(a)(1), Dec. 11, 1991, 105 Stat. 1687; Pub. L. 108–311, title II, § 207(10), Oct. 4, 2004, 118 Stat. 1177, related to amounts received under qualified group legal services plans. A prior section 120, act Aug. 16, 1954, ch. 736, 68A Stat. 39, related to statutory subsistence allowance received by police, prior to repeal by Pub. L. 85–866, title I, § 3(a), (c), Sept. 2, 1958, 72 Stat. 1607, effective with respect to taxable years ending after Sept. 30, 1958, but only with respect to amounts received as a statutory subsistence allowance for any day after Sept. 30, 1958. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as an Effective Date of 2014 Amendment note under sec- tion 1 of this title. § 121. Exclusion of gain from sale of principal residence (a) Exclusion Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or ex- change, such property has been owned and used by the taxpayer as the taxpayer’s principal resi- dence for periods aggregating 2 years or more. (b) Limitations (1) In general The amount of gain excluded from gross in- come under subsection (a) with respect to any sale or exchange shall not exceed $250,000. (2) Special rules for joint returns In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property— (A) $500,000 Limitation for certain joint re- turns Paragraph (1) shall be applied by sub- stituting ‘‘$500,000’’ for ‘‘$250,000’’ if— (i) either spouse meets the ownership re- quirements of subsection (a) with respect to such property; (ii) both spouses meet the use require- ments of subsection (a) with respect to such property; and (iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3). (B) Other joint returns If such spouses do not meet the require- ments of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the Page 575 TITLE 26—INTERNAL REVENUE CODE § 121 period that either spouse owned the prop- erty. (3) Application to only 1 sale or exchange every 2 years 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 ex- change, there was any other sale or exchange by the taxpayer to which subsection (a) ap- plied. (4) Special rule for certain sales by surviving spouses In the case of a sale or exchange of property by an unmarried individual whose spouse is deceased on the date of such sale, paragraph (1) shall be applied by substituting ‘‘$500,000’’ for ‘‘$250,000’’ if such sale occurs not later than 2 years after the date of death of such spouse and the requirements of paragraph (2)(A) were met immediately before such date of death. (5) Exclusion of gain allocated to nonqualified use (A) In general Subsection (a) shall not apply to so much of the gain from the sale or exchange of property as is allocated to periods of non- qualified use. (B) Gain allocated to periods of nonqualified use For purposes of subparagraph (A), gain shall be allocated to periods of nonqualified use based on the ratio which— (i) the aggregate periods of nonqualified use during the period such property was owned by the taxpayer, bears to (ii) the period such property was owned by the taxpayer. (C) Period of nonqualified use For purposes of this paragraph— (i) In general The term ‘‘period of nonqualified use’’ means any period (other than the portion of any period preceding January 1, 2009) during which the property is not used as the principal residence of the taxpayer or the taxpayer’s spouse or former spouse. (ii) Exceptions The term ‘‘period of nonqualified use’’ does not include— (I) any portion of the 5-year period de- scribed in subsection (a) which is after the last date that such property is used as the principal residence of the tax- payer or the taxpayer’s spouse, (II) any period (not to exceed an aggre- gate period of 10 years) during which the taxpayer or the taxpayer’s spouse is serving on qualified official extended duty (as defined in subsection (d)(9)(C)) described in clause (i), (ii), or (iii) of sub- section (d)(9)(A), and (III) any other period of temporary ab- sence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unfore- seen circumstances as may be specified by the Secretary. (D) Coordination with recognition of gain at- tributable to depreciation For purposes of this paragraph— (i) subparagraph (A) shall be applied after the application of subsection (d)(6), and (ii) subparagraph (B) shall be applied without regard to any gain to which sub- section (d)(6) applies. (c) Exclusion for taxpayers failing to meet cer- tain 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), and subsection (b)(3), shall not apply; but the dollar limita- tion under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to— (A) the amount which bears the same ratio to such limitation (determined without re- gard to this paragraph) as (B)(i) 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 tax- payer to which subsection (a) applied and before the date of such sale or exchange, bears to (ii) 2 years. (2) Sales and exchanges to which subsection applies This subsection shall apply to any sale or ex- change 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)(3), and (B) such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, un- foreseen circumstances. (d) Special rules (1) Joint returns If a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use re- quirements 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 de- ceased on the date of the sale or exchange of property, the period such unmarried indi- vidual owned and used such property shall in- clude the period such deceased spouse owned and used such property before death. (3) Property owned by spouse or former spouse For purposes of this section— Page 576 TITLE 26—INTERNAL REVENUE CODE § 121 (A) Property transferred to individual from spouse or former spouse In the case of an individual holding prop- erty transferred to such individual in a transaction described in section 1041(a), the period such individual owns such property shall include the period the transferor owned the property. (B) Property used by former spouse pursuant to divorce decree, etc. Solely for purposes of this section, an indi- vidual shall be treated as using property as such individual’s principal residence during any period of ownership while such individ- ual’s spouse or former spouse is granted use of the property under a divorce or separation instrument. (C) Divorce or separation instrument For purposes of this paragraph, the term ‘‘divorce or separation instrument’’ means— (i) a decree of divorce or separate main- tenance or a written instrument incident to such a decree, (ii) a written separation agreement, or (iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse. (4) Tenant-stockholder in cooperative housing corporation For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as de- fined 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. (5) Involuntary conversions (A) In general For purposes of this section, the destruc- tion, theft, seizure, requisition, or con- demnation of property shall be treated as the sale of such property. (B) Application of section 1033 In applying section 1033 (relating to invol- untary 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 in- come pursuant to this section. (C) Property acquired after involuntary con- version If the basis of the property sold or ex- changed is determined (in whole or in part) under section 1033(b) (relating to basis of property acquired through involuntary con- version), 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. (6) Recognition of gain attributable to depre- ciation Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation ad- justments (as defined in section 1250(b)(3)) at- tributable to periods after May 6, 1997, in re- spect of such property. (7) Determination of use during periods of out- of-residence care In the case of a taxpayer who— (A) becomes physically or mentally in- capable 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 resi- dence during any time during such 5-year pe- riod in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivi- sion to care for an individual in the taxpayer’s condition. (8) Sales of remainder interests For purposes of this section— (A) In general At the election of the taxpayer, this sec- tion shall not fail to apply to the sale or ex- change of an interest in a principal residence by reason of such interest being a remainder interest in such residence, but this section shall not apply to any other interest in such residence which is sold or exchanged sepa- rately. (B) Exception for sales to related parties Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b). (9) Uniformed services, Foreign Service, and intelligence community (A) In general At the election of an individual with re- spect to a property, the running of the 5- year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be sus- pended during any period that such indi- vidual or such individual’s spouse is serving on qualified official extended duty— (i) as a member of the uniformed serv- ices, (ii) as a member of the Foreign Service of the United States, or (iii) as an employee of the intelligence community. (B) Maximum period of suspension The 5-year period described in subsection (a) shall not be extended more than 10 years by reason of subparagraph (A). (C) Qualified official extended duty For purposes of this paragraph— (i) In general The term ‘‘qualified official extended duty’’ means any extended duty while Page 577 TITLE 26—INTERNAL REVENUE CODE § 121 1 See References in Text note below. serving at a duty station which is at least 50 miles from such property or while resid- ing under Government orders in Govern- ment quarters. (ii) Uniformed services The term ‘‘uniformed services’’ has the meaning given such term by section 101(a)(5) of title 10, United States Code, as in effect on the date of the enactment of this paragraph. (iii) Foreign Service of the United States The term ‘‘member of the Foreign Serv- ice of the United States’’ has the meaning given the term ‘‘member of the Service’’ by paragraph (1), (2), (3), (4), or (5) of sec- tion 103 of the Foreign Service Act of 1980, as in effect on the date of the enactment of this paragraph. (iv) Employee of intelligence community The term ‘‘employee of the intelligence community’’ means an employee (as de- fined by section 2105 of title 5, United States Code) of— (I) the Office of the Director of Na- tional Intelligence, (II) the Central Intelligence Agency, (III) the National Security Agency, (IV) the Defense Intelligence Agency, (V) the National Geospatial-Intel- ligence Agency, (VI) the National Reconnaissance Of- fice, (VII) any other office within the De- partment of Defense for the collection of specialized national intelligence through reconnaissance programs, (VIII) any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treas- ury, the Department of Energy, and the Coast Guard, (IX) the Bureau of Intelligence and Re- search of the Department of State, or (X) any of the elements of the Depart- ment of Homeland Security concerned with the analyses of foreign intelligence information. (v) Extended duty The term ‘‘extended 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. (D) Special rules relating to election (i) Election limited to 1 property at a time An election under subparagraph (A) with respect to any property may not be made if such an election is in effect with respect to any other property. (ii) Revocation of election An election under subparagraph (A) may be revoked at any time. (10) Property acquired in like-kind exchange If a taxpayer acquires property in an ex- change with respect to which gain is not rec- ognized (in whole or in part) to the taxpayer under subsection (a) or (b) of section 1031, sub- section (a) shall not apply to the sale or ex- change of such property by such taxpayer (or by any person whose basis in such property is determined, in whole or in part, by reference to the basis in the hands of such taxpayer) during the 5-year period beginning with the date of such acquisition. [(11) Repealed. Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300] (12) Peace Corps (A) In general At the election of an individual with re- spect to a property, the running of the 5- year period described in subsections (a) and (c)(1)(B) and paragraph (7) of this subsection with respect to such property shall be sus- pended during any period that such indi- vidual or such individual’s spouse is serving outside the United States— (i) on qualified official extended duty (as defined in paragraph (9)(C)) as an employee of the Peace Corps, or (ii) as an enrolled volunteer or volunteer leader under section 5 or 6 (as the case may be) of the Peace Corps Act (22 U.S.C. 2504, 2505). (B) Applicable rules For purposes of subparagraph (A), rules similar to the rules of subparagraphs (B) and (D) of paragraph (9) shall apply. (e) Denial of exclusion for expatriates This section shall not apply to any sale or ex- change by an individual if the treatment pro- vided by section 877(a)(1) applies to such indi- vidual. (f) Election to have section not apply This section shall not apply to any sale or ex- change with respect to which the taxpayer elects not to have this section apply. (g) Residences acquired in rollovers under sec- tion 1034 For purposes of this section, in the case of property the acquisition of which by the tax- payer resulted under section 1034 1 (as in effect on the day before the date of the enactment of this section) 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 resi- dence taken into account under section 1223(6) 1 in determining the holding period of such prop- erty) had been so owned and used. (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; Pub. L. 105–34, title III, Page 578 TITLE 26—INTERNAL REVENUE CODE § 121 § 312(a), Aug. 5, 1997, 111 Stat. 836; Pub. L. 105–206, title VI, § 6005(e)(1), (2), July 22, 1998, 112 Stat. 805; Pub. L. 107–16, title V, § 542(c), June 7, 2001, 115 Stat. 84; Pub. L. 108–121, title I, § 101(a), Nov. 11, 2003, 117 Stat. 1336; Pub. L. 108–357, title VIII, § 840(a), Oct. 22, 2004, 118 Stat. 1597; Pub. L. 109–135, title IV, §§ 402(a)(3), 403(ee), Dec. 21, 2005, 119 Stat. 2610, 2631; Pub. L. 109–432, div. A, title IV, § 417(a)–(d), Dec. 20, 2006, 120 Stat. 2965, 2966; Pub. L. 110–142, § 7(a), Dec. 20, 2007, 121 Stat. 1806; Pub. L. 110–172, § 11(a)(11)(A), Dec. 29, 2007, 121 Stat. 2485; Pub. L. 110–245, title I, §§ 110(a), 113(a), (b), June 17, 2008, 122 Stat. 1633, 1635; Pub. L. 110–289, div. C, title III, § 3092(a), July 30, 2008, 122 Stat. 2911; Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300; Pub. L. 113–295, div. A, title II, §§ 212(c), 213(c)(1), 221(a)(20), Dec. 19, 2014, 128 Stat. 4033, 4040; Pub. L. 115–97, title I, § 11051(b)(3)(A), Dec. 22, 2017, 131 Stat. 2089.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this paragraph, referred to in subsec. (d)(9)(C)(ii), (iii), is the date of enactment of Pub. L. 108–121, which was approved Nov. 11, 2003. Section 103 of the Foreign Service Act of 1980, re- ferred to in subsec. (d)(9)(C)(iii), is classified to section 3903 of Title 22, Foreign Relations and Intercourse. Section 1034 (as in effect on the day before the date of the enactment of this section), referred to in subsec. (g), probably means section 1034 of this title as in effect on the day before the date of enactment of Pub. L. 105–34 which amended this section generally and was approved Aug. 5, 1997. Section 1034 was repealed by Pub. L. 105–34, title III, § 312(b), Aug. 5, 1997, 111 Stat. 839. Section 1223(6), referred to in subsec. (g), was repealed by Pub. L. 113–295, div. A, title II, § 221(a)(80)(C), Dec. 19, 2014, 128 Stat. 4049. CODIFICATION Pub. L. 109–135, title IV, § 403(ee)(1), (nn), Dec. 21, 2005, 119 Stat. 2631, 2632, which directed that subsec. (d) of this section be amended by redesignating the paragraph (10) relating to property acquired from a decedent as paragraph (11), effective as if included in the provisions to which such amendment relates of the American Jobs Creation Act of 2004, Pub. L. 108–357, was executed as the probable intent of Congress by redesignating as paragraph (11) the paragraph (10) directed to be added to subsec. (d) of this section by Pub. L. 107–16, § 542(c), (f)(1), applicable to estates of decedents dying after Dec. 31, 2009. See Codification note, 2001, 2003, and 2005 Amendment notes, and Effective Date of 2005 Amend- ment note below. Pub. L. 108–121, title I, § 101(a), (b)(1), Nov. 11, 2003, 117 Stat. 1336, which directed that subsec. (d) of this sec- tion be amended by redesignating paragraph (9) as (10) and adding a new paragraph (9), effective as if included in the amendments made by section 312 of the Taxpayer Relief Act of 1997, Pub. L. 105–34, could not literally be executed insofar as it directed the redesignation be- cause subsec. (d), as amended by Pub. L. 105–34, did not contain a paragraph (9). However, to reflect the prob- able intent of Congress, the amendment was executed by redesignating as paragraph (10) the paragraph (9) di- rected to be added to subsec. (d) of this section by Pub. L. 107–16, § 542(c), (f)(1), applicable to estates of dece- dents dying after Dec. 31, 2009. See Codification note above and 2001, 2003, and 2005 Amendment notes and Ef- fective Date of 2003 Amendment note below. PRIOR PROVISIONS A prior section 121 was renumbered section 140 of this title. AMENDMENTS 2017—Subsec. (d)(3)(B). Pub. L. 115–97, § 11051(b)(3)(A)(i), struck out ‘‘(as defined in section 71(b)(2))’’ after ‘‘divorce or separation instrument’’. Subsec. (d)(3)(C). Pub. L. 115–97, § 11051(b)(3)(A)(ii), added subpar. (C). 2014—Subsec. (b)(3). Pub. L. 113–295, § 221(a)(20), struck out subpar. (A) designation and heading and subpar. (B) and realigned margins. Prior to amendment, text of subpar. (B) read as follows: ‘‘Subparagraph (A) shall be applied without regard to any sale or exchange before May 7, 1997.’’ Subsec. (b)(4), (5). Pub. L. 113–295, § 212(c), redesig- nated par. (4), relating to exclusion of gain allocated to nonqualified use, as (5). Subsec. (d)(12)(B). Pub. L. 113–295, § 213(c)(1), inserted ‘‘of paragraph (9)’’ after ‘‘and (D)’’. 2010—Subsec. (d)(11). Pub. L. 111–312 amended subsec. (d) to read as if amendment by Pub. L. 107–16, § 542(c), which originally added par. (9), had never been enacted. See Codification notes above and 2001 Amendment note and Effective Date of 2010 Amendment note below. Prior to amendment, par. (11) read as follows: ‘‘PROP- ERTY ACQUIRED FROM A DECEDENT.—The exclusion under this section shall apply to property sold by— ‘‘(A) the estate of a decedent, ‘‘(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and ‘‘(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as de- fined in section 645(b)(1)) established by the decedent, determined by taking into account the ownership and use by the decedent.’’ 2008—Subsec. (b)(4). Pub. L. 110–289 added par. (4) re- lating to exclusion of gain allocated to nonqualified use. Subsec. (d)(9)(C)(vi). Pub. L. 110–245, § 113(b), struck out heading and text of cl. (vi). Text read as follows: ‘‘An employee of the intelligence community shall not be treated as serving on qualified extended duty unless such duty is at a duty station located outside the United States.’’ Subsec. (d)(9)(E). Pub. L. 110–245, § 113(a), struck out heading and text of subpar. (E). Text read as follows: ‘‘Clause (iii) of subparagraph (A) shall not apply with respect to any sale or exchange after December 31, 2010.’’ Subsec. (d)(12). Pub. L. 110–245, § 110(a), added par. (12). 2007—Subsec. (b)(4). Pub. L. 110–142 added par. (4) re- lating to special rule for certain sales by surviving spouses. Subsec. (d)(9)(E). Pub. L. 110–172 added subpar. (E). 2006—Subsec. (d)(9). Pub. L. 109–432, § 417(d), sub- stituted ‘‘Uniformed services, Foreign Service, and in- telligence community’’ for ‘‘Members of uniformed services and Foreign Service’’ in heading. Subsec. (d)(9)(A). Pub. L. 109–432, § 417(a), substituted ‘‘duty— ‘‘(i) as a member of the uniformed services, ‘‘(ii) as a member of the Foreign Service of the United States, or ‘‘(iii) as an employee of the intelligence commu- nity.’’ for ‘‘duty as a member of the uniformed services or of the Foreign Service of the United States.’’ Subsec. (d)(9)(C)(iv), (v). Pub. L. 109–432, § 417(b), added cl. (iv) and redesignated former cl. (iv) as (v). Subsec. (d)(9)(C)(vi). Pub. L. 109–432, § 417(c), added cl. (vi). 2005—Subsec. (d)(10). Pub. L. 109–135, § 403(ee)(2), amended heading and text of par. (10) relating to prop- erty acquired in like-kind exchange generally. Prior to amendment, text read as follows: ‘‘If a taxpayer ac- quired property in an exchange to which section 1031 applied, subsection (a) shall not apply to the sale or ex- change of such property if it occurs during the 5-year period beginning with the date of the acquisition of such property.’’ Page 579 TITLE 26—INTERNAL REVENUE CODE § 121 Subsec. (d)(11). Pub. L. 109–135, § 403(ee)(1), redesig- nated par. (10), formerly par. (9), as added by Pub. L. 107–16, as (11). See Codification notes above and 2001 and 2003 Amendment notes and Effective Date of 2001 Amendment note below. Subsec. (g). Pub. L. 109–135, § 402(a)(3), substituted ‘‘section 1223(6)’’ for ‘‘section 1223(7)’’. 2004—Subsec. (d)(10). Pub. L. 108–357 added par. (10) re- lating to property acquired in like-kind exchange. 2003—Subsec. (d)(9), (10). Pub. L. 108–121 added par. (9) and redesignated former par. (9), as added by Pub. L. 107–16, as (10). See Codification notes above and 2001 Amendment note and Effective Date of 2001 Amend- ment note below. 2001—Subsec. (d)(9). Pub. L. 107–16, § 542(c), added par. (9). See Codification notes above and Effective Date of 2001 Amendment note below. 1998—Subsec. (b)(2). Pub. L. 105–206, § 6005(e)(1), sub- stituted ‘‘Special rules for joint returns’’ for ‘‘$500,000 limitation for certain joint returns’’ in heading and amended text generally. Prior to amendment, text read as follows: ‘‘Paragraph (1) shall be applied by sub- stituting ‘$500,000’ for ‘$250,000’ if— ‘‘(A) a husband and wife make a joint return for the taxable year of the sale or exchange of the property, ‘‘(B) either spouse meets the ownership require- ments of subsection (a) with respect to such property, ‘‘(C) both spouses meet the use requirements of sub- section (a) with respect to such property, and ‘‘(D) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by rea- son of paragraph (3).’’ Subsec. (c)(1). Pub. L. 105–206, § 6005(e)(2), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: ‘‘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)(3) shall not apply; but the amount of gain excluded from gross income under subsection (a) with respect to such sale or ex- change shall not exceed— ‘‘(A) the amount which bears the same ratio to the amount which would be so excluded under this sec- tion if such requirements had been met, as ‘‘(B) the shorter of— ‘‘(i) the aggregate periods, during the 5-year pe- riod ending on the date of such sale or exchange, such property has been owned and used by the tax- payer as the taxpayer’s principal residence, or ‘‘(ii) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to 2 years.’’ 1997—Pub. L. 105–34 amended section catchline and text generally. Prior to amendment, section related to one-time exclusion of gain from sale of principal resi- dence by individual who had attained age 55. 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 in- dividual 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) sub- stituted 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), sub- stituted ‘‘$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’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to any di- vorce or separation instrument (as defined in former section 71(b)(2) of this title as in effect before Dec. 22, 2017) executed after Dec. 31, 2018, and to such instru- ments executed on or before Dec. 31, 2018, and modified after Dec. 31, 2018, if the modification expressly pro- vides that the amendment made by section 11051 of Pub. L. 115–97 applies to such modification, see section 11051(c) of Pub. L. 115–97, set out as a note under section 61 of this title. EFFECTIVE DATE OF 2014 AMENDMENT Amendment by section 212(c) of Pub. L. 113–295 effec- tive as if included in the provisions of the Housing As- sistance Tax Act of 2008, Pub. L. 110–289, div. C, to which such amendment relates, see section 212(d) of Pub. L. 113–295, set out as a note under section 42 of this title. Pub. L. 113–295, div. A, title II, § 213(d), Dec. 19, 2014, 128 Stat. 4034, provided that: ‘‘The amendments made by this section [amending this section and sections 125 and 877 of this title and provisions set out as a note under section 6511 of this title] shall take effect as if in- cluded in the provisions of the Heroes Earnings Assist- ance and Relief Tax Act of 2008 [Pub. L. 110–245] to which they relate.’’ Amendment by section 221(a)(20) of Pub. L. 113–295 ef- fective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE AND TERMINATION DATES OF 2010 AMENDMENT Pub. L. 111–312, title III, § 301(e), Dec. 17, 2010, 124 Stat. 3301, provided that: ‘‘Except as otherwise provided in this section, the amendments made by this section [amending this section and sections 170, 684, 1014, 1040, 1221, 1246, 1291, 1296, 2505, 4947, 6018, 6019, 6075, and 7701 of this title and repealing sections 1022, 2210, 2664, and 6716 of this title] shall apply to estates of decedents dying, and transfers made, after December 31, 2009.’’ Pub. L. 111–312, title III, § 304, Dec. 17, 2010, 124 Stat. 3304, which provided that section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16, would apply to the amendments made by title III of Pub. L. 111–312, was repealed by Pub. L. 112–240, title I, § 101(a)(2), Jan. 2, 2013, 126 Stat. 2315. [Amendment by Pub. L. 112–240 (repealing section 304 of Pub. L. 111–312, formerly set out above) applicable to taxable, plan, or limitation years beginning after Dec. 31, 2012, and estates of decedents dying, gifts made, or generation skipping transfers after Dec. 31, 2012, see section 101(a)(3) of Pub. L. 112–240, set out as a note fol- lowing former section 901 of Pub. L. 107–16 which was set out as an Effective and Termination Dates of 2001 Amendment note under section 1 of this title.] EFFECTIVE DATE OF 2008 AMENDMENT Pub. L. 110–289, div. C, title III, § 3092(b), July 30, 2008, 122 Stat. 2912, provided that: ‘‘The amendment made by this section [amending this section] shall apply to sales and exchanges after December 31, 2008.’’ Pub. L. 110–245, title I, § 110(b), June 17, 2008, 122 Stat. 1634, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to tax- able years beginning after December 31, 2007.’’ Pub. L. 110–245, title I, § 113(c), June 17, 2008, 122 Stat. 1635, provided that: ‘‘The amendments made by this section [amending this section] shall apply to sales or exchanges after the date of the enactment of this Act [June 17, 2008].’’ Page 580 TITLE 26—INTERNAL REVENUE CODE § 121 EFFECTIVE DATE OF 2007 AMENDMENT Pub. L. 110–142, § 7(b), Dec. 20, 2007, 121 Stat. 1806, pro- vided that: ‘‘The amendment made by this section [amending this section] shall apply to sales or ex- changes after December 31, 2007.’’ EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–432, div. A, title IV, § 417(e), Dec. 20, 2006, 120 Stat. 2966, as amended by Pub. L. 110–172, § 11(a)(11)(B), Dec. 29, 2007, 121 Stat. 2485, provided that: ‘‘The amendments made by this section [amending this section] shall apply to sales or exchanges after the date of the enactment of this Act [Dec. 20, 2006].’’ EFFECTIVE DATE OF 2005 AMENDMENT Amendment by section 402(a)(3) of Pub. L. 109–135 ef- fective as if included in the provisions of the Energy Policy Act of 2005, Pub. L. 109–58, to which it relates, but not applicable with respect to any transaction or- dered in compliance with the Public Utility Holding Company Act of 1935 (15 U.S.C. 79 et seq.) before its re- peal, see section 402(m) of Pub. L. 109–135, set out as an Effective and Termination Dates of 2005 Amendments note under section 23 of this title. Amendment by section 403(ee) of Pub. L. 109–135 effec- tive as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title. EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title VIII, § 840(b), Oct. 22, 2004, 118 Stat. 1597, provided that: ‘‘The amendment made by this section [amending this section] shall apply to sales or exchanges after the date of the enactment of this Act [Oct. 22, 2004].’’ EFFECTIVE DATE OF 2003 AMENDMENT Pub. L. 108–121, title I, § 101(b), Nov. 11, 2003, 117 Stat. 1336, provided that: ‘‘(1) EFFECTIVE DATE.—The amendments made by this section [amending this section] shall take effect as if included in the amendments made by section 312 of the Taxpayer Relief Act of 1997 [Pub. L. 105–34]. ‘‘(2) WAIVER OF LIMITATIONS.—If refund or credit of any overpayment of tax resulting from the amend- ments made by this section [amending this section] is prevented at any time before the close of the 1-year pe- riod beginning on the date of the enactment of this Act [Nov. 11, 2003] by the operation of any law or rule of law (including res judicata), such refund or credit may nev- ertheless be made or allowed if claim therefor is filed before the close of such period.’’ EFFECTIVE DATE OF 2001 AMENDMENT Pub. L. 107–16, title V, § 542(f), June 7, 2001, 115 Stat. 86, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [enacting sec- tions 1022 and 6716 of this title and amending this sec- tion and sections 170, 684, 1040, 1221, 1246, 1291, 1296, 4947, 6018, 6019, 6075, and 7701 of this title] shall apply to es- tates of decedents dying after December 31, 2009. ‘‘(2) TRANSFERS TO NONRESIDENTS.—The amendments made by subsection (e)(1) [amending section 684 of this title] shall apply to transfers after December 31, 2009. ‘‘(3) SECTION 4947.—The amendment made by sub- section (e)(4) [amending section 4947 of this title] shall apply to deductions for taxable years beginning after December 31, 2009.’’ EFFECTIVE DATE OF 1998 AMENDMENT Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title III, § 312(d), Aug. 5, 1997, 111 Stat. 841, as amended by Pub. L. 105–206, title VI, § 6005(e)(3), July 22, 1998, 112 Stat. 806, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and sections 25, 32, 56, 143, 163, 215, 280A, 464, 512, 1016, 1033, 1038, 1223, 1250, 1274, 6012, 6045, 6212, 6334, 6504, and 7872 of this title and re- pealing section 1034 of this title] shall apply to sales and exchanges after May 6, 1997. ‘‘(2) SALES ON OR BEFORE DATE OF ENACTMENT.—At the election of the taxpayer, the amendments made by this section shall not apply to any sale or exchange on or before the date of the enactment of this Act [Aug. 5, 1997]. ‘‘(3) CERTAIN SALES WITHIN 2 YEARS AFTER DATE OF EN- ACTMENT.—Section 121 of the Internal Revenue Code of 1986 (as amended by this section) shall be applied with- out regard to subsection (c)(2)(B) thereof in the case of any sale or exchange of property during the 2-year pe- riod beginning on the date of the enactment of this Act if the taxpayer held such property on the date of the enactment of this Act and fails to meet the ownership and use requirements of subsection (a) thereof with re- spect to such property. ‘‘(4) BINDING CONTRACTS.—At the election of the tax- payer, the amendments made by this section shall not apply to a sale or exchange after the date of the enact- ment of this Act, if— ‘‘(A) such sale or exchange is pursuant to a contract which was binding on such date, or ‘‘(B) without regard to such amendments, gain would not be recognized under section 1034 of the In- ternal 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 ac- quired on or before such date or with respect to the acquisition of which by the taxpayer a binding con- tract was in effect on 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.’’ EFFECTIVE DATE OF 1988 AMENDMENT Pub. L. 100–647, title VI, § 6011(b), Nov. 10, 1988, 102 Stat. 3691, 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 Pub. L. 97–34, title I, § 123(b), Aug. 13, 1981, 95 Stat. 197, 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 Pub. L. 95–600, title IV, § 404(d)(1), Nov. 6, 1978, 92 Stat. 2870, 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 Pub. L. 94–455, title XIV, § 1404(b), Oct. 4, 1976, 90 Stat. 1733, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to tax- able years beginning after December 31, 1976.’’ EFFECTIVE DATE Pub. L. 88–272, title II, § 206(c), Feb. 26, 1964, 78 Stat. 40, provided that: ‘‘The amendments made by this sec- tion [enacting this section, redesignating former sec- tion 121 as 122, and amending sections 1033, 1034, and Page 581 TITLE 26—INTERNAL REVENUE CODE § 123 6012 of this title] shall apply to dispositions after Dec. 31, 1963, in taxable years ending after such date.’’ SENSE OF CONGRESS CONCERNING TAX TREATMENT OF PRINCIPAL RESIDENCE OF MEMBERS OF ARMED FORCES WHILE AWAY FROM HOME ON ACTIVE DUTY Pub. L. 105–261, div. A, title X, § 1074, Oct. 17, 1998, 112 Stat. 2138, provided that: ‘‘It is the sense of Congress that a member of the Armed Forces should be treated for purposes of section 121 of the Internal Revenue Code of 1986 as using property as a principal residence during any continuous period that the member is serving on active duty for 180 days or more with the Armed Forces, but only if the member used the property as a principal residence for any period during or imme- diately before that period of active duty.’’ TRANSITIONAL RULE IN CASE OF SALE OR EXCHANGE OF RESIDENCE BEFORE JULY 26, 1981 Pub. L. 95–600, title IV, § 404(d)(2), Nov. 6, 1978, 92 Stat. 2870, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘In the case of a sale or ex- change of a residence before July 26, 1981, a taxpayer who has attained age 65 on the date of such sale or ex- change 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.’’ § 122. Certain reduced uniformed services retire- ment pay (a) General rule In the case of a member or former member of the uniformed services of the United States, gross income does not include the amount of any reduction in his retired or retainer pay pur- suant to the provisions of chapter 73 of title 10, United States Code. (b) Special rule (1) Amount excluded from gross income In the case of any individual referred to in subsection (a), all amounts received as retired or retainer pay shall be excluded from gross income until there has been so excluded an amount equal to the consideration for the con- tract. The preceding sentence shall apply only to the extent that the amounts received would, but for such sentence, be includible in gross income. (2) Consideration for the contract For purposes of paragraph (1) and section 72(n), the term ‘‘consideration for the con- tract’’ means, in respect of any individual, the sum of— (A) the total amount of the reductions be- fore January 1, 1966, in his retired or re- tainer pay by reason of an election under chapter 73 of title 10 of the United States Code, and (B) any amounts deposited at any time by him pursuant to section 1438 or 1452(d) of such title 10. (Added Pub. L. 89–365, § 1(a)(1), Mar. 8, 1966, 80 Stat. 32; amended Pub. L. 93–406, title II, §§ 2005(c)(10), 2007(a), (b)(1), Sept. 2, 1974, 88 Stat. 992, 994; Pub. L. 113–295, div. A, title II, § 221(a)(21), Dec. 19, 2014, 128 Stat. 4040.) Editorial Notes PRIOR PROVISIONS A prior section 122 was renumbered section 140 of this title. AMENDMENTS 2014—Subsec. (b)(1). Pub. L. 113–295 struck out ‘‘after December 31, 1965,’’ after ‘‘all amounts received’’. 1974—Subsec. (a). Pub. L. 93–406, § 2007(a), substituted ‘‘United States, gross income does not include the amount of any reduction in his retired or retainer pay pursuant to the provisions of chapter 73 of title 10, United States Code’’ for ‘‘United States who has made an election under chapter 73 of title 10 of the United States Code to receive a reduced amount of retired or retainer pay, gross income does not include the amount of any reduction after December 31, 1965, in his retired or retainer pay by reason of such election’’. Subsec. (b)(2). Pub. L. 93–406, § 2005(c)(10), substituted ‘‘72(n)’’ for ‘‘72(o)’’. Subsec. (b)(2)(B). Pub. L. 93–406, § 2007(b)(1), inserted reference to section 1452(d) of title 10. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a savings provision, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1974 AMENDMENT Amendment by section 2005(c)(10) of Pub. L. 93–406 ap- plicable only with respect to distributions or payments made after Dec. 31, 1973, in taxable years beginning after Dec. 31, 1973, see section 2005(d) of Pub. L. 93–406, set out as a note under section 402 of this title. Pub. L. 93–406, title II, § 2007(c), Sept. 2, 1974, 88 Stat. 993, provided that: ‘‘The amendments made by this sec- tion [amending this section and sections 72, 101, and 2039 of this title] apply to taxable years ending on or after September 21, 1972. The amendments made by paragraphs (3) and (4) of subsection (b) [amending sec- tions 101 and 2039 of this title] apply with respect to in- dividuals dying on or after such date’’. EFFECTIVE DATE Pub. L. 89–365, § 1(d), Mar. 10, 1966, 80 Stat. 33, pro- vided that: ‘‘The amendments made by subsections (a) and (b) [enacting this section and amending section 72 of this title] shall apply with respect to taxable years ending after December 31, 1965. The amendment made by subsection (c) [amending section 101 of this title] shall apply with respect to individuals making an elec- tion under chapter 73 of title 10 of the United States Code who die after December 31, 1965.’’ § 123. Amounts received under insurance con- tracts for certain living expenses (a) General rule In the case of an individual whose principal residence is damaged or destroyed by fire, storm, or other casualty, or who is denied access to his principal residence by governmental au- thorities because of the occurrence or threat of occurrence of such a casualty, gross income does not include amounts received by such individual under an insurance contract which are paid to compensate or reimburse such individual for liv- ing expenses incurred for himself and members of his household resulting from the loss of use or occupancy of such residence. (b) Limitation Subsection (a) shall apply to amounts received by the taxpayer for living expenses incurred dur- ing any period only to the extent the amounts received do not exceed the amount by which— (1) the actual living expenses incurred dur- ing such period for himself and members of his household resulting from the loss of use or oc- cupancy of their residence, exceed