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In general, TEI believes Form 2119 is logical and relatively easy to follow. The instructions to the form, in combination with Publication 523, are generally complete and, with some minor exceptions, comprehensible. Indeed, the number one problem with the form is not its format or instructions; rather, it is that many taxpayers simply do not realize the form exists. Although the current instructions to the Form 1040 (Individual Income Tax Return) mention Form 2119 in the general description of "income," many individuals apparently remain unaware that sales of residences must be reported (even if the gain, if any, is being deferred). The Institute suggests that references to Form 2119 within Form 1040's line-by-line instructions be expanded. For example, the instructions for Line 13 of Form 1040 (Capital Gains and Losses) do not now mention the proper reporting for the sale of personal residences; a reference to Form 2119 could be added here. Another means of heightening awareness of the requirement may be to add a question to the Form 1040 asking, "Did you sell your principal residence this year? If so, file Form 2119."
With respect to the specific format of Form 2119, we offer the following comments. (For simplicity's sake, the line references are to the 1991 form.)
a. Line 4 (Selling price of home). Line 4 instructs taxpayers not to include "personal property items that you sold with your home." Neither the instructions nor Publication 523, however, define "personal property." Examples of includible items (such as fixtures) and excludable items (such as lawn implements) should be included in the instructions.
b. Line 7 (Basis of home sold). Taxpayers may be confused concerning the calculation of the basis of their old home. To avert questions concerning what items are (or are not) included in the basis of the home, the instructions should contain a "laundry list" of items found on the typical settlement sheet that can (e.g., transfer taxes, attorney's fees) and cannot (e.g., fire insurance premiums) be added to basis. In addition, taxpayers should be advised that certain purchases (such as a new roof) increase the basis of the old home.
Finally, we suggest that the instructions for Line 7 remind taxpayers that shrubbery and trees may qualify as "improvements" for basis purposes. See Marcella v. Commissioner, 222 F.2d 878 (8th Cir. 1955).
c. Line 10. Line 10 instructs taxpayers to "subtract line 9f from line 8a." We suggest adding the parenthetical "(Gain realized)."
Tax Executives Institute appreciates this opportunity to present our views on Form 2119. If you have any questions, please do not hesitate to call W. Remi Taylor, chair of TEI's IRS Administrative Affairs Committee, at (704) 382-8174 or Mary L. Fahey of the Institute's professional staff at (202) 638-5601. |
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