DEFINITIONS

Section 121 Exclusion: The section 121 exclusion applies to the sale of a principal residence after May 6th, 1997.
Under Section 121, a single individual can exclude from income up to $250,000 ($500,000 married filing joint) of
gain realized on the sale or exchange of a principal residence. The seller must have owned and occupied the
residence for at least 2 of the last 5 years. The exclusion can be claimed no more than once every 2 years. Special
rules apply for homes used partly for business or rental, vacation homes converted to principal residences, and
property acquired thru a Section 1031 exchange and then converted to a principal residence.

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Qualified Leasehold Improvement: An improvement to an interior part of a building that is nonresidential real
property, if all the following requirements are met:

The improvement is made under or according to a lease by the lessee (or any sublessee) or the lessor of that
part of the building.
That part of the building is to be occupied exclusively by the lessee (or any sublessee) of that part.
The improvement is placed in service more than 3 years after the date the building was first placed in service
by any person.
The improvement is section 1250 property. See chapter 3 in Publication 544, Sales and Other Dispositions
of Assets, for the definition of section 1250 property.

However, a qualified leasehold improvement does not include any improvement for which the expenditure is
attributable to any of the following:

The enlargement of the building.
Any elevator or escalator.
Any structural component benefiting a common area.
The internal structural framework of the building.

Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are
treated as the lessor and lessee. However, a lease between related persons is not treated as a lease.