I
105TH CONGRESS
1ST SESSION
H. R. 442
To amend the Internal Revenue Code of 1986 to exclude from gross income
up to $500,000 of gain on the sale of a principal residence and up
to $500,000 of gain on the sale of farmland.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 9, 1997
Mr. SMITH of Michigan (for himself and Mrs. CHENOWETH) introduced the
following bill; which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to exclude
from gross income up to $500,000 of gain on the sale
of a principal residence and up to $500,000 of gain
on the sale of farmland.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. EXCLUSION OF GAIN ON SALE OF PRINCIPAL
RESIDENCE.
(a) IN GENERAL.—Section 121 of the Internal Reve-
nue Code of 1986 (relating to one-time exclusion of gain
from sale of principal residence by individual who has at-
tained age 55) is amended to read as follows:
‘‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude 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 his principal residence for periods aggregating
3 years or more.
‘‘(b) DOLLAR LIMITATION.—The amount of the gain
excluded from gross income under subsection (a) shall not
exceed $500,000 ($250,000 in the case of a separate re-
turn by a married individual).
‘‘(c) SPECIAL RULES.—
‘‘(1) PROPERTY HELD JOINTLY BY HUSBAND
AND WIFE.—For purposes of this section, if—
‘‘(A) property is held by a husband and
wife as joint tenants, tenants by the entirety, or
community property,
‘‘(B) such husband and wife make a joint
return for the taxable year of the sale or ex-
change, and
‘‘(C) one spouse satisfies the holding and
use requirements of subsection (a) with respect
to such property,
then both husband and wife shall be treated as satis-
fying the holding 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, if the deceased
spouse (during the 5-year period ending on the date
of the sale or exchange) satisfied the holding and
use requirements of subsection (a) with respect to
such property, then such individual shall be treated
as satisfying the holding and use requirements of
subsection (a) with respect to such property.
‘‘(3) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—For purposes of this sec-
tion, 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 sub-
section (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, requisi-
tion, or condemnation of property shall be
treated as the sale of such property.
‘‘(B) PROPERTY ACQUIRED AFTER INVOL-
UNTARY
CONVERSION.—–If the basis of the
property sold or exchanged is determined (in
whole or in part) under subsection (b) of sec-
tion 1033 (relating to basis of property ac-
quired through involuntary conversion), then
the holding and use by the taxpayer of the con-
verted property shall be treated as holding and
use by the taxpayer of the property sold or ex-
changed.
‘‘(5) APPLICATION
OF
SECTIONS
1033
AND
1034.—In applying sections 1033 (relating to invol-
untary conversions) and 1034 (relating to sale or ex-
change of residence), 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 under this section.
‘‘(6) 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 3 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 deter-
mined, under regulations prescribed by the Sec-
retary, to be attributable to the portion of the prop-
erty so owned and used by the taxpayer.
‘‘(7) DETERMINATION OF MARITAL STATUS.—
In the case of any sale or exchange, for purposes of
this section—
‘‘(A) the determination of whether an indi-
vidual 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 sepa-
rate maintenance shall not be considered as
married.
‘‘(8) DETERMINATION OF USE DURING PERIODS
OF OUT-OF-RESIDENCE CARE.—In the case of a tax-
payer 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 pe-
riods 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 tax-
payer 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.’’
(b) TECHNICAL AMENDMENTS.—
(1) 
Sections 
1033(k)(3), 
1034(l),
1038(e)(1)(A), 1250(d)(7)(B), and 6012(c) of such
Code are each amended by striking ‘‘who has at-
tained age 55’’.
(2) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
striking the item relating to section 121 and insert-
ing the following:
‘‘Sec. 121. Exclusion of gain from sale of principal residence.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to sales and exchanges after De-
cember 31, 1996.
SEC. 2. EXCLUSION OF GAIN ON SALE OF FARMLAND.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by inserting after section 121 the following new section:
‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF FARM-
LAND.
‘‘(a) GENERAL RULE.—Gross income does not in-
clude gain from the sale or exchange of property if—
‘‘(1) such property is owned by the taxpayer
throughout the 3-year period ending on the date of
the sale or exchange, and
‘‘(2) during the 5-year period ending on such
date, such property has been used by any person as
a farm for farming purposes (as defined in section
2032A(e)) for periods aggregating 3 years or more.
‘‘(b) DOLLAR LIMITATION.—The amount of the gain
excluded from gross income under subsection (a) shall not
exceed $500,000 ($250,000 in the case of a separate re-
turn by a married individual).
‘‘(c) SPECIAL RULES.—Rules similar to the rules of
paragraphs (1), (2), and (7) of section 121(d) shall apply
for purposes of this section.’’