Rev. Rul. 74-205

Advice has been requested concerning the treatment for Federal income tax purposes of "replacement housing payments" received by individuals pursuant to the Housing and Urban Development Act of 1968 (1968 Act) Public Law 90-448, 1968-2 C.B. 734, and the Uniform Relocation Assistance and Real Property Acquisitions Policies Act of 1970 (1970 Act), Public Law 91-646, 1971-1 C.B. 540.

In general, replacement housing payments made under the above Acts are for the purpose of aiding individuals and families displaced from their homes, businesses or farms by Federal or federally assisted programs in acquiring decent, safe and sanitary dwellings of modest standards sufficient in size to accommodate the displaced owners, reasonably accessible to public services and places of employment, and available on the open market. As a condition to receiving the payment, a displaced owner must (a) under the 1968 Act, purchase and occupy a replacement dwelling within one year from the date he is required to move; (b) under the 1970 Act, purchase and occupy a replacement dwelling within one year from the date on which he receives from the Federal agency final payment of all costs of the acquired dwelling, or on the date on which he moves from the acquired dwelling, whichever is later. This payment is in addition to any acquisition payment, and cannot exceed $5,000 under the 1968 Act and $15,000 under the 1970 Act.

In House Report No. 1585, Ninetieth Congress, Second Session, page 5, it is noted that the purpose of the 1968 Act is to further implement the national goal of providing "a decent home and a suitable living environment for every American family."

The Internal Revenue Service has consistently held that payments made under legislatively provided social benefit programs for promotion of the general welfare are not includible in a recipient's gross income. See for example, Revenue Ruling 63-136, 1963-2 C.B. 19, concerning payments under the Manpower Development and Training Act; Revenue Ruling 68-38, 1968-1 C.B. 446, involving payments under Title II-A of the Economic Opportunity Act of 1964; and Revenue Ruling 72-340, 1972-2 C.B. 31, concerning stipends paid by a city to unemployed or underemployed probationers.

Accordingly, replacement housing payments made prior to January 2, 1971, pursuant to the 1968 Act are not includible in the gross incomes of the recipients.

As to replacement housing payments made on or after January 2, 1971, such payments are specifically exempted from taxation by section 216 of the Uniform Relocation Assistance and Real Property Acquisitions Policies Act of 1970, which repealed the provisions of the 1968 Act, but provided for substantially the same type of payments.

In determining the basis of a new residence where part of the cost of its acquisition relates to a replacement housing payment, such payment is taken into account as part of the displaced person's cost of the newly acquired property, and is includible in the basis of such property.

¹ Also released as Technical Information Release No. 1285, dated April 10, 1974.