article: SECTION 1. EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE. (a) In General.--Section 121 of the Internal Revenue Code of 1986 is amended to read as follows: ``SEC. 121. EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE. ``(a) General Rule.--Gross income does not include gain from the sale or exchange of property if during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as his principal residence for periods aggregating 2 years or more. ``(b) Dollar Limitation.-- ``(1) In general.--The amount of the gain excluded from gross income under subsection (a) shall not exceed $250,000 ($500,000 in the case of a joint return where both spouses meet the holding and use requirements of subsection (a)). ``(2) Inflation adjustment.-- ``(A) In general.--In the case of a taxable year beginning in a calendar year after 1997, the $250,000 and $500,000 amounts contained in paragraph (1) shall each be increased by an amount equal to-- ``(i) such dollar amount, multiplied by ``(ii) the cost-of-living adjustment under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 1996' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding.--If any amount as adjusted under subparagraph (A) is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100. ``(c) Special Rules.-- ``(1) Property held jointly by husband and wife.--For purposes of this section, if-- ``(A) property is held by a husband and wife as joint tenants, tenants by the entirety, or community property, ``(B) such husband and wife make a joint return under section 6013 for the taxable year of the sale or exchange, and ``(C) one spouse satisfies the holding and use requirements of subsection (a) with respect to such property, then both husband and wife shall be treated as satisfying the holding and use requirements of subsection (a) with respect to such property. ``(2) Property of deceased spouse.--For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, if the deceased spouse (during the 5-year period ending on the date of the sale or exchange) satisfied the holding and use requirements of subsection (a) with respect to such property, then such individual shall be treated as satisfying the holding and use requirements of subsection (a) with respect to such property. ``(3) Tenant-stockholder in cooperative housing corporation.--For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then-- ``(A) the holding requirements of subsection (a) shall be applied to the holding of such stock, and ``(B) the use requirements of subsection (a) shall be applied to the house or apartment which the taxpayer was entitled to occupy as such stockholder. ``(4) Involuntary conversions.--For purposes of this section, the destruction, theft, seizure, requisition, or condemnation of property shall be treated as the sale of such property. ``(5) Property used in part as principal residence.--In the case of property only a portion of which, during the 5-year period ending on the date of the sale or exchange, has been owned and used by the taxpayer as his principal residence for periods aggregating 2 years or more, this section shall apply with respect to so much of the gain from the sale or exchange of such property as is determined, under regulations prescribed by the Secretary, to be attributable to the portion of the property so owned and used by the taxpayer. ``(6) Determination of marital status.--In the case of any sale or exchange, for purposes of this section-- ``(A) the determination of whether an individual is married shall be made as of the date of the sale or exchange; and ``(B) an individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married. ``(7) Application of sections 1033 and 1034.---In applying sections 1033 (relating to involuntary conversions) and 1034 (relating to sale or exchange of residence), the amount realized from the sale or exchange of property shall be treated as being the amount determined without regard to this section. ``(8) Property acquired after involuntary conversion.--If the basis of the property sold or exchanged is determined (in whole or in part) under subsection (b) of section 1033 (relating to basis of property acquired through involuntary conversion), then the holding and use by the taxpayer of the converted property shall be treated as holding and use by the taxpayer of the property sold or exchanged. ``(9) Determination of use during periods of out-of- residence care.--In the case of a taxpayer who-- ``(A) becomes physically or mentally incapable of self-care, and ``(B) owns property and uses such property as the taxpayer's principal residence during the 5-year period described in subsection (a) for periods aggregating at least 1 year, then the taxpayer shall be treated as using such property as the taxpayer's principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer's condition. ``(d) Election To Have Section Not Apply.--At the election of the taxpayer with respect to any sale or exchange of a principal residence, this section shall not apply to such sale or exchange.'' (b) Conforming Amendments.-- (1) Paragraph (3) of section 1033(k) is amended to read as follows: ``(3) For exclusion from gross income of gain from involuntary conversion of principal residence, see section 121.'' (2) Subparagraph (A) of section 1038(e)(1) is amended by striking ``(relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55)'' and inserting the following: ``(relating to gain on sale of principal residence)''. (3) subparagraph (B) of section 1250(d)(7) is amended to read as follows: ``(B) property in respect of which the taxpayer meets the ownership requirements of section 121, but only to the extent that the taxpayer meets the use requirements of such section in respect of such property.'' (4) Subsection (c) of section 6012 is amended by striking ``(relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55)'' and inserting ``(relating to gain from sale of principal residence)''. (5) The item relating to section 121 in the table of sections for part III of subchapter B of chapter 1 is amended to read as follows: ``Sec. 121. Exclusion of gain from sale of principal residence.'' (c) Effective Date.--The amendments made by this section shall apply to sales and exchanges on or after the date of the enactment of this Act.
summary: Amends the Internal Revenue Code to exclude up to $250,000 ($500,000 jointly) of gain on the sale of a principal residence if owned and used as the principal residence for periods aggregating at least two years during the five-year period prior to sale or exchange. Sets forth special rules relating to: (1) jointly held property; (2) a deceased spouse; (3) a cooperative housing tenant-stockholder; (4) partial principal residence use; (5) determination of marital status; (6) acquisition after involuntary conversion; and (6) periods of out-of-residence health care.