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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.

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