CHAPTER 81

An Act to amend the Code of Virginia by adding a section numbered
58-85.1, prescribing the basis upon which gains shall be recognized
upon disposition by sale, exchange or otherwise by a taxpayer of
property used as his residence and acquisition by him of another
residence.

[(S 13]

Approved February 20, 1952

Be it enacted by the General Assembly of Virginia:

1. That the Code of Virginia be amended by adding a section numbered
58-85.1, as follows:

-§ 58-85.1. Gain from sale or exchange of residence.—(a) Nonrecog-
nition of gain.—If property (hereinafter in this section called “‘old resi-
dence’) used by the taxpayer as his principal residence was or is sold by
him on or after January first, nineteen hundred fifty two, and within
a period beginning one year prior to the date of such sale and ending
one year after such date, property (hereinafter in this section called
“new residence’) is purchased and used by the taxpayer as his principal
residence, gain (if any) from such sale shall be recognized only to the
extent that the taxpayer’s selling price of the old residence exceeds the
taxpayer’s cost of purchasing the new residence.

(b) Rules for application of section.—For the purposes of this sec-
tion:

(1) An exchange by the taxpayer of his residence for other property
shall be considered as a sale of such residence, and the acquisition of a
residence upon the exchange of property shall be considered as a purchase
of such residence.

(2) If the taxpayer’s residence (as a result of its destruction in
whole or in part, theft, or seizure) is compulsorily or involuntarily con-
verted into property or into money, such destruction, theft, or seizure
shall be considered as a sale of the residence; and if the residence is so
converted into property which is used by the taxpayer as his residence,
such conversion shall be considered as a purchase of such property by
the taxpayer.

(3) In the case of an exchange or conversion described in paragraph
(1) or (2), in determining the extent to which the selling price of the
old residence exceeds the taxpayer’s cost of purchasing the new residence,
the amount realized by the taxpayer upon such exchange or conversion
shall be considered the selling price of the old residence.

(4) A residence any part of which was constructed or reconstructed
by the taxpayer shall be considered as purchased by the taxpayer. In
determining the taxpayer’s cost of purchasing a residence, there shall be
included only so much of his cost as is attributable to the acquisition, con-
struction, reconstruction, and improvements made which are properly
oe to capital account, during the period specified in subsection
(a).

(5) If a residence is purchased by the taxpayer prior to the date of
his sale of the old residence, the purchased residence shall not be treated
as his new residence if sold or otherwise disposed of by him prior to the
date of the sale of the old residence.

(6) If the taxpayer, during the period described in subsection (a),
purchases more than one residence which is used by him as his principal
residence at some time within one year after the date of the sale of the
old residence, only the last of such residences so used by him after the
date of such sale shall constitute the new residence. If within the one
year referred to in the preceding sentence property used by the taxpayer
as his principal residence is destroyed, stolen, seized, requisitioned, or
condemned, or is sold or exchanged under threat or imminence thereof,
then for the purposes of the preceding sentence such one year shall be
considered as ending with the date of such destruction, theft, seizure, re-
quisition, condemnation, sale, or exchange.

(7) In the case of a new residence the construction. of which was
commenced by the taxpayer prior to the expiration of one year after the
date of the sale of the old residence, the period specified in subsection (a),
and the one year referred to in paragraph (6) of this subsection, shall
be considered as including a period of eighteen months beginning with
the date of the sale of the old residence.

(c) Limitation.—The provisions of subsection (a) shall not be ap-
plicable with respect to the sale of the taxpayer’s residence if within one
year prior to the date of such sale the taxpayer sold at a gain other prop-
erty used by him as his principal residence, and any part of such gain
was not recognized by reason of the provisions of subsection (a). For
the purposes of this subsection, the destruction, theft, seizure, requisi-
tion, or condemnation of property or the sale or exchange of property
under threat or imminence thereof, shall not be considered as a sale of
such property.

(d) Basis of new residence.—Where the purchase of a new residence
results, under subsection (a), in the nonrecognition of gain upon the sale
of an old residence, in determining the basis of the new residence as of
any time following the sale of the old residence, the basis of the new resi-
dence shall be reduced by an amount equal to the amount of the gain not
so recognized upon the sale of the old residence. For this purpose, the
amount of the gain not so recognized upon the sale of the old residence in-
cludes only so much of such gain as is not recognized by reason of the
cost, up to such time, of purchasing the new residence.

(e) Husband and wife.—If the taxpayer and his spouse, in accor-
dance with regulations which shall be prescribed by the Department of
Taxation pursuant to this subsection, consent to the application of para-
graph (2) of this subsection, then—

(1) for the purposes of this section, the words “taxpayer’s selling
price of the old residence” shall mean the selling price (of the taxpayer,
or of the taxpayer and his spouse) of the old residence, and the words
“taxpayer’s cost of purchasing the new residence” shall mean the cost (to
the taxpayer, his spouse, or both) of purchasing the new residence
(whether held by the taxpayer, his spouse, or the taxpayer and his
spouse) ; and i, ,

(2) so much of the gain upon the sale of the old residence as is not
recognized solely by reason of this subsection, and so much of the re-
duction under subsection (d) of the basis of the new residence as results
solely from this subsection, shall be allocated between the taxpayer and
his spouse as provided in such regulation.

This subsection shall apply only if the old residence and the new resi-
dence are each used by the taxpayer and his spouse as their principal
residence. In case the taxpayer and his spouse do not consent to the ap-
plication of paragraph (2) of this subsection, then the recognition of
gain upon the sale of the old residence shall be determined under this
section without regard to the rules provided in this subsection.

(f) If the taxpayer during a taxable year sells at a gain property
used by him as his principal residence, then the period for the assess-
ment of any deficiency attributable to any part of such gain shall not
expire prior to December thirty-one of the fourth year after the year
in which the Department of Taxation is notified by the taxpayer (in such
manner as said Department may prescribe) of

(1) the taxpayer’s cost of purchasing the new residence which the
taxpayer claims results in nonrecognition of any part of such gain,

(2) the taxpayer’ s intention not to purchase a new residence within
the period specified in subsection (a), or

(3) a failure to make such purchase within such period.