If you own more than one home, do you know which is your principal residence? It could be more important than you think. Why? Because when you sell a property, you can generally exclude up to $250,000 of gain ($500,000 for a married couple) from tax. But that’s only if you’ve used the property as your principal residence for two of the last five years.
Sometimes it’s obvious which of your properties is your main home. But some people live in two or more homes at different times of the year. Then it becomes more difficult to establish which is your principal residence. The usual rule is that the home where you spend the most time is your principal residence. But if your tax treatment of a sale is questioned, other factors could become important.
For example, the IRS will look at which address you showed on your driver’s license and where you were registered to vote. They’ll look at where you worked relative to the location of the homes, and where family members lived. If the homes are in different states, they’ll look at where you paid state income taxes. They might even research where you attended church or participated in social or athletic clubs.
So if the location of your principal home is likely to be important to you, pay attention to these small details. Keep good records of the time you spend in each home, and make sure all the supporting evidence backs up your claim.
For details or assistance, give us a call.