Sorry, Mr. Bush, but your claim is weak. The accountants, the tax books and the IRS pretty unanimously say that the big tax break you took on your 1981 tax return was probably wrong.
Furthermore, in your circumstances, there seems to be little persuasive precedent for the move. "There's nothing illegal about taking an aggressive position on your tax return," one tax attorney told me. "You're saying to the government, 'I think this is right; if I'm wrong, tell me.' But Bush doesn't have much ground to stand on."
George Bush's tax claim involved a point familiar to any homeowner: deferring the capital gains tax when you sell your house for a profit and buy another one. Under the rules, you can defer taxes if (1) the house is your principal residence; (2) you buy or build a new principal residence within two years, and (3) your new house costs at least as much as you sold the old one for.
Vice President Bush took this tax break in 1981, the year after his election. He sold his house in Houston for $843,273 and rolled the money into a new home in Kennebunkport, Maine. He reported the sale on his tax return, but claimed a deferral of nearly $500,000 in profits on the transaction. In effect, he was saying that he had moved to Maine.
Last spring, the IRS said: sorry, no. It found that Bush lives in Washington, at the official vice-presidential residence. He was able to shelter the first $100,000 in profits by taking the maximum tax exclusion then available to any homeowner aged 55 or older. But he owed back taxes on the rest. Combined with another tax adjustment involving campaign funds, Bush owed $144,000 in taxes plus $54,000 in interest. He has appealed the IRS decision.
The vice president is now trying to depict himself as an all-American taxpayer fighting for his rights before a hard-hearted IRS. But he doesn't have much to fall back on. Bush has not been "singled out" by the IRS, as he claims; rulings affecting other taxpayers in similar circumstances have gone the same way.
President Nixon, for example, wasn't able to use his house in San Clemente, Calif., as a principal residence for tax purposes. The IRS said he lived in the White House. A 1977 revenue ruling concerning a congressman found that he lived in his house in Washington, not in the house he maintained in his home district.
When a taxpayer owns two homes, or owns one home and spends time in another (as Bush does), the facts and circumstances of the case decide which is his principal residence. The IRS looks mainly at where you and your family spend a majority of your time. In close calls, they also look at supporting evidence, such as where you vote (Bush votes in Texas) and where your car is registered.
The deferral does not apply only to single-family houses. You can get it for any principal residence you own, including the share value of a cooperative apartment, your portion of a multifamily house, a trailer, even a houseboat.
What if you own two homes, and decide to sell one and move into the other? This often happens at retirement, when a couple may dispose of its regular house and move into what used to be a summer home. If you bought the summer home within two years of the move, you will be able to roll your money from one house to the other and qualify for tax deferral. But there's no deferral if you bought it earlier, with this exception: Any money spent improving the summer house during the two years before the move can be used to help reduce your tax.
What if you separate or divorce? When a separated couple sells a jointly owned house, with each getting one-half of the sale proceeds, both will get the deferral if their respective new houses cost more than their half shares.
States also may have strict rules on residence, affecting whether or not you owe state or city income taxes. Anyone with a place of abode in New York, for example, will owe taxes in any year he or she spends 183 days or more in the state. "A lot of executives with homes out of state and apartments on Park Avenue don't dare set foot in New York City in November and December," one accountant said, "because they've already used up their 183 days."