The taxpayer can elect to have the exclusion of gain under § 121 (sale of principal residence) not apply.

Question

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Taxpayers have the option to elect to have the exclusion of gain under § 121 not apply if they want to report the gain on the sale of their primary residence on their tax return. This may be beneficial if the taxpayer has a large loss or other deductions that can offset the gain. However, once the election is made, it cannot be undone.

The Taxpayer Can Elect to Have the Exclusion of Gain