Rev. Rul. 77-371

On May 15, 1975, the taxpayer sold, at a gain, residence A that had been the taxpayer's principal residence for the preceding two years. Following this sale, the taxpayer moved to residence B that had previously been held as rental property and used it as a principal residence until shortly before November 15, 1976, when the taxpayer purchased and used residence C as a principal residence. The taxpayer's purchase and use of residence C was within the 18 months succeeding the sale of residence A.

Residence B was sold, at a gain, shortly after November 15, 1976. The taxpayer's cost of purchasing residence C exceeded the adjusted sale price of both residence A and residence B.

Held, for purposes of section 1034 of the Internal Revenue Code of 1954, sales of two or more residences by a taxpayer cannot be matched with the purchase by that taxpayer of a single replacement residence.

Therefore, since the adjusted sales price of residence A did not exceed the cost of purchasing residence C, none of the gain realized on the sale of residence A will be recognized under section 1034(a) of the Code. The gain realized on the sale of residence B will be recognized as provided by section 1002.