[WSBAPT] Section 121 exclusion question

[Eric Reutter]

I have a question that involves the applicability of the IRC Section 121
exclusion.

My question is this: Can the Section 121 exclusion be utilized even when
the legal title holders have not been residing in the home as their primary
residence? Specifically, what if the ones residing in the home have been
the parties who, for all other purposes but legal title and the loan
documents, have been acting as the homeowners? (i.e. the residents have
made all the mortgage payments, property tax payments, and upkeep on the
property).

Perhaps a simpler way of phrasing the question is this: *if, for example,
parents became the legal title holders of a home simply because their son
could not qualify for the home mortgage, but all of the mortgage, upkeep,
and tax payments have been made by the son, can either he or the parents
somehow utilize the Section 121 exclusion when the home is sold?*

There is still a mortgage on the property that likely contains a 'due on
sale' clause, so I do not believe the parents in my hypothetical could quit
claim the property to the son and therefore give him legal title before a
sale is made. I am stuck therefore, wondering if the IRS perhaps recognizes
a type of "equitable title" doctrine in the context of Section 121.

Curious if anyone has run into a similar situation before. Feedback is
always appreciated.

Best regards,


*Eric Reutter, *Partner
*J.D., LL.M. Taxation*
14205 SE 36th Street, Suite 100
Bellevue, WA 98006
*(425) 298-7110* | *appelgatereutter.com <http://appelgatereutter.com/> *



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