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Home sale exclusion can't be used by bankruptcy estate.

The Mehrs filed a bankruptcy petition in 1989. Their home was among the assets transferred to the bankruptcy estate. A bankruptcy estate - a separate taxpayer - is generally created when an individual debtor files a bankruptcy petition. The estate becomes the owner of the debtor's property and also of certain of the debtor's tax attributes. The attributes to which the bankruptcy estate succeeds are listed in IRC section 1398(g).

The Mehrs' home was sold by the trustee in 1990. The Mehrs were over age 55 and otherwise qualified to take the IRC section 121 once-in-a-lifetime $125,000 exclusion for gain on the sale of a residence. The trustee, in preparing the bankruptcy estate's 1990 fiduciary return, claimed the exclusion.

The IRS said the one-time exclusion could not be used by a bankruptcy estate.

Result: For the IRS. The bankruptcy estate may not use the onetime exclusion. An examination of the age and principal-residence requirements shows Congress intended only individuals benefit from section 121. Further, section 1398(g) does not list the section 121 exclusion as a tax attribute to which the bankruptcy estate can succeed. Therefore, the bankruptcy estate must include in income the entire gain from the home sale.

In re Mehr (U. S. Bankruptcy Ct. N.J., 1993).
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Article Details
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:May 1, 1993
Words:210
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