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Specific Comments on the Proposed
Section 121 Regulations
(Reg-105235-99; October 10, 2000)
May 1, 2001
V. Definition of a Principal Residence
Comments
- Clarify the Meaning of Use by the In-Spouse
The Section 121 Proposed Regulations restrict the out-spouse’s right
to claim use of a residence as his principal residence to the period that the in-spouse
uses the property as a principal residence—language that does not appear in Section
121(d)(3)(B) (or in the legislative history to the Taxpayer Relief Act of 1997). This
limitation, if strictly applied, may create problems for the out-spouse which most likely
were not intended by Congress in drafting the relief provision of Section 121(d)(3)(B). An
out-spouse may have no control over the activities of the former spouse and may also be
prevented from selling the property if the former spouse moves out.
Recommendation: Prop. Reg. §1.121-4(b)(2) should be modified to
state that if a divorce or separation instrument grants use of the residence to the
in-spouse, the out-spouse should continue to be treated as meeting the Section 121(a) use
requirements without regard to the manner in which the in-spouse uses the residence.
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