Owners of multiple residences lose principal residence exclusion.

• Author: O'Driscoll, David

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...