FACTS: Able sold his principal residence in New Jersey in 1979. He did not reinvest the proceeds in a new house but made a one-time election excluding his gain from federal gross income, as allowed under § 121 of the Internal Revenue Code to persons over 55. In 1983, Able bought a principal residence in Massachusetts which he sold in 1988.

ISSUE: Since Able's federal § 121 election did not affect his Massachusetts taxable income, may he now elect to exclude the gain from the 1988 sale of his Massachusetts residence?

DISCUSSION: With exceptions not relevant here, Massachusetts gross income is the same as federal gross income in any given tax year. G.L. c. 62, § 2(a). At the federal level, a taxpayer may elect once to exclude from his federal gross income up to $125,000 of gain on the sale of a principal residence if certain requirements are met. I.R.C. § 121(a).

Because federal gross income and Massachusetts gross income are generally the same, if a taxpayer makes the federal election his federal gross income will not include the gain, and neither will his Massachusetts gross income for that year. Conversely, if a taxpayer either cannot or does not make a § 121 election in a given tax year, the entire amount of the gain must be included in his Massachusetts gross income (unless excluded under some other provision of law).

DIRECTIVE: Able made his § 121 election in 1979 when he excluded the gain from the sale of his New Jersey residence from his federal gross income. This election may be made only once; Able, therefore, cannot now elect § 121 treatment on the sale of his Massachusetts residence. I.R.C. § 121(b)(2). Since his federal gross income will include the gain realized, the gain is part of his Massachusetts gross income as well.

REFERENCE: I.R.C. § 121(a), (b)(2); G.L. c. 62, § 2(a).

/s/Stephen W. Kidder
Stephen W. Kidder
Commissioner of Revenue

December 31, 1988

DD 88-20

This Directive represents the official position of the Department of Revenue on the application of the law to the facts as stated. The Department and its personnel will follow this Directive, and taxpayers may rely upon it, unless it is revoked or modified pursuant to 830 CMR 62C.01(5)(e). In applying this Directive, however, the effect of subsequent legislation, regulations, court decisions, Directives, and TIRs must be considered, and Department personnel and taxpayers may rely upon this Directive only if the facts, circumstances and issues presented in other cases are substantially the same as those set forth in this Directive.