Section 121(d)(11) generally provides that for property acquired from a decedent, or the decedent’s estate or trust, the taxpayer may take into account the ownership and use by the decedent for determining eligibility to exclude gain on the sale or exchange of the property.  Section 121(d)(11) was enacted in 2001 as Section 542(c), Subtitle E, Title V of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L. 107 16 originally enacted § 121(d)(11) as § 121(d)(9).  This statute (EGTRRA) is one of two statutes collectively known as “the Bush Tax Cuts of 2001.”  On December 17, 2010, section 301(a) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111, 312, (the 2010 Act), retroactively repealed § 121(d)(11), as if it “had never been enacted.”

Section 301(c) of the 2010 Act allows the executor of an estate of a decedent who died in 2010 to elect to apply § 121(d)(11) as though section 301(a) of the 2010 Act did not apply with respect to chapter 11 of the Internal Revenue Code (the estate tax), and with respect to property acquired or passing from the decedent (within the meaning of §1014(b)).  If the executor makes the election under section 301(c) with respect to a decedent dying in 2010, then § 121(d)(11) may apply to take into account the ownership and use of the property by the decedent. On the other hand, if the executor makes no election, or the decedent died before or after 2010, a selling taxpayer may not take into account the ownership or use of the property by the decedent.

Therefore, § 121(d)(11) is not wholly repealed because taxpayers receiving a principal residence from a decedent or a decedent’s estate may apply § 121(d)(11) to take into account the ownership and use by the decedent for determining eligibility to exclude gain on the sale of such property, if the executor of a decedent who died in 2010 makes a proper election under section 301(c) of the 2010 Act.

See CCM 201429022: Repeal of Section 121(d)(11)  (July 18, 2014).

Posted by Chuba Abaelu,

Associate Editor, Wealth Strategies Journal