Owners of multiple residences lose principal residence exclusion.

M and E purchased their Wisconsin residence in March 1993 and sold it on Sept. 15, 1998. During the five-year period before the sale, they also owned homes in Georgia and Arizona. Their Georgia residence, which they owned when they purchased the Wisconsin residence, was sold in 1996, at which time they purchased a home in Arizona. The taxpayers generally resided at the Wisconsin home during the warm months and at their Georgia or Arizona home the rest of the year. During the five-year period from Sept. 15, 1993--Sept. 15, 1998, M and E occupied their Wisconsin residence for 847 days, their Georgia residence for 563 days and their Arizona residence for 375 days.

In dispute is whether M and E used the Wisconsin residence as their principal residence during that period for purposes of the Sec. 121 exclusion of gain from a sale of a principal residence.

Regs. Sec. 1.121-1(b)(2) states:

(2) Principal residence. In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer. As the taxpayer's principal residence depends upon al] of the facts and circumstances. If a taxpayer alternates between 2 properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily win be considered the taxpayer's principal residence. In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence include, but ate not limited to:

(i) The taxpayer's place of employment;

(ii) The principal place of abode of the taxpayer's family members;

(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;

(iv) The taxpayer's mailing address for bills and correspondence;

(v) The location of the taxpayer's banks; and

(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.

Time Spent at Residence

The fact that M and E used the Wisconsin residence for more total days in the five-year period than either the Georgia or the Arizona residence is not determinative for Sec. 121(a) purposes, because Regs. Sec. 1.121-1(b)(2) only refers to the time spent in a residence during a single tax year.

M and E's own undisputed figures fail to establish that the Wisconsin house was their principal residence; they show that they spent more time there only during the first year of the five-year period (1993-1994), and that for each of the other four years, they spent the majority of each year either at the Georgia house (1994-1995 and 1995-1996), or the Arizona house (1996-1997 and 1997-1998). Their figures also show that for the entire five-year period, they spent more time in the Georgia and Arizona houses combined than they did in the Wisconsin house (52.5% versus 47.5%, respectively).

Other Factors

Although time spent in a residence is a major factor in determining whether a residence is a principal residence, other factors ate also relevant; see Regs. Sec. 1.121-1(b)(2). In this case, those other factors, taken as a whole, do not establish that the Wisconsin house was the principal residence.

First, a majority of the factors do not actually favor any one of the residences as being the principal residence: the location of M's and E's recreational and other activities do not favor Wisconsin. For example, although M served on the board of the Wisconsin homeowners' association and returned to Wisconsin during the winter months for major holidays and to attend football games, both M and E were actively involved in tennis activities in Georgia, and M lectured at local Georgia colleges. The location of the children's principal abodes do not favor any of the residences, because none of the children then lived in Wisconsin, Georgia or Arizona. The location where M and E received their mail and did their banking does not favor Wisconsin, because they received mail and had bank accounts at each residence. The location where they registered their vehicles does not favor Wisconsin, either, because they kept one car and two boats in Wisconsin and kept two cars at their Georgia house and then at their Arizona house.

Second, other important factors definitely point to the Wisconsin residence as not being the principal residence. During the relevant period, neither M nor E filed Wisconsin tax returns, but did file Georgia and/or Arizona returns. Also, neither M nor E was registered to vote in Wisconsin, but both were registered in Georgia and then in Arizona. In addition, neither M nor E had a Wisconsin driver's license, but both had a Georgia license and then ah Arizona license. They also treated their Arizona house as their principal residence for the 1999 tax year for purposes of now-repealed Sec. 1034(a).

One relevant factor decidedly favoring Wisconsin as the principal residence is the imposing size of the Wisconsin house. However, that is insufficient as a matter of law to overcome the other facts and circumstances establishing that Wisconsin was not M and E's principal residence for Sec. 121(a) purposes.

JAMES GUINAN, DC AZ, 4/9/03