Members of the military may have difficulty meeting the 24-months-of-use requirement of Section 121 due to time spent away from the residence for official active duty. Many service members on extended overseas assignments, or who are required to live in government housing while stationed in the U.S., may end up not qualifying for the gain exclusion of Section 121.
Recommendation: The ABA Standing Committee on Legal Assistance for Military Personnel has submitted comments on the Section 121 proposed regulations on this issue. We agree with that committee’s suggestion to incorporate into the proposed Treasury Regulation a modification that would suspend, for time spent away from home due to official extended duty, the 5-year period during which the ownership and use requirements of Section 121 must be met for service members. The proposed modification follows.
Section 1.121-4(d). Special Rule For Members Of Uniformed Services In Determining Exclusion Of Gain From Sale Of Principal Residence.
(1) In general. The running of the 5-year period described in I.R.C. section 121 shall be suspended with respect to an individual during any time that such individual or such individual's spouse is serving on qualified official extended duty as a member of the uniformed services.
- Qualified official extended duty. The term "qualified official extended duty" means any period of extended duty as a member of the uniformed services during which the member serves at a duty station that is at least 50 miles from such property or is under official orders to reside in government quarters.
- Uniformed services. The term "uniformed services" has the meaning given such term by section 101(a)(5) of title 10, United States Code, as in effect on the date of the enactment of these regulations.
- Extended duty. The term "extended duty" means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
The full text of the Standing Committee’s submission is attached to this comment as an appendix.
As an alternative, if the Service believes that the preceding recommendation cannot be accomplished without legislative action, we recommend that the Section 121 regulations address this issue through the definition of a temporary absence. The definition of temporary absence in Prop. Reg. §1.121-1(c) could be expanded to provide that, for members of the military, time spent away from a residence on government orders will count as use of the residence. A minimum actual use requirement could be added to ensure that the owner’s intent was to use the residence as a personal residence. For example, the member of the military could be required to have a minimum of 3 months of actual use as a residence in order to treat time spent away on assignment as use of the residence.
