@mjwoo94015 wrote:
I happen to agree with your conclusion but have not found any authority for this position.
The Internal Revenue Code and Treasury Regulations are authority for the position stated.
There are rules of precedence and court cases that clearly contradict statutes and regulations would be quickly overturned at the appellate level. Further, and generally, the only court decisions the IRS would be absolutely bound to follow, would be U.S Supreme Court cases and final decisions of U.S. Courts of Appeal (where Cert has been denied by the Supreme Court).
It is also not clear to me why any taxpayer would prefer Section 121 treatment over Section 1014 since the latter does not have a dollar limitation. For example, if a decedent had a basis in a primary residence of $100,000 and the property had a fair market value of $750,000 on the date of death, the home sale exclusion would (if it were applicable) exclude $250,000 of the $650,000 gain while Section 1014 would effectively shield all of the gain.
