Rev. Rul. 77-298

Advice has been requested whether, under the circumstances described below, a taxpayer's residence, located in Washington, D.C., qualifies as a "principal residence" for purposes of deferring recognition of gain under section 1034 of the Internal Revenue Code of 1954.

Shortly after election as a Member of Congress, the taxpayer purchased a residence in Washington, D.C. while retaining ownership of a residence in the taxpayer's congressional district. For the next eight years, the taxpayer and family occupied the Washington residence and the taxpayer's minor children attended school in the Washington area. On occasions, the taxpayer used the residence in the taxpayer's congressional district for lodging during visits there. On many of these visits, the taxpayer was accompanied by the family.

In June 1976, the taxpayer sold the Washington residence at a gain and purchased another Washington residence.

Section 1034 of the Code provides that if a taxpayer sells property (the "old residence") used by the taxpayer as a principal residence and, within a period beginning 18 months before the date of such sale and ending 18 months after such date, property (the "new residence") was purchased and used by the taxpayer as a principal residence, gain (if any) from such sale shall be recognized only to the extent that the taxpayer's adjusted sales price of the old residence exceeds the taxpayer's cost of purchasing the new residence.

Section 1.1034-1(c)(3) of the Income Tax Regulations provides that whether or not property is used by the taxpayer as a residence, and whether or not property is used by the taxpayer as a principal residence (in the case of a taxpayer using more than one property as a residence), depends upon all the facts and circumstances in each case, including the good faith of the taxpayer.

A taxpayer may have only one principal residence at any one time. In case in which a taxpayer alternates between two properties, physically occupying each as a residence for successive periods of time, the property that the taxpayer occupies a majority of the time will ordinarily be considered the taxpayer's principal residence for purposes of section 1034 of the Code.

Accordingly, for purposes of section 1034 of the Code, the Washington residence, not the residence in the taxpayer's congressional district, is the taxpayer's principal residence and the taxpayer is entitled to nonrecognition of gain on the sale of the Washington residence to the extent provided by section 1034.