If you have more than one residence -- say, a sunbelt home you use as a getaway during the winter -- you'll eventually need to determine which one is your primary residence. While this can be confusing, because the Internal Revenue Service doesn’t have a standard definition for a principal residence, you can rest easy knowing one thing: Whether or not you pay property taxes on your home has no bearing on whether it qualifies as your primary residence when you're ready to sell your home. So if you live somewhere where property taxes don't apply, such as on a houseboat or a mobile home that pays in-lieu license fees, this isn't an issue.
Home Is Where the Heart Usually Is
While the IRS examines many circumstances when it determines your principal residence, the one that carries the most weight is obvious: Where you spend most of your time is your primary residence. Because of this, if you own a vacation home that you only use a couple of weeks each year, don’t even think about claiming it as your primary residence. If you split time evenly between two homes, such as spending six months in Florida and six months in New York each year, you’ll need to use other means to determine your principal residence.
While property taxes don’t have a direct bearing on determining which of your homes qualifies as a principal residence, state and local income taxes may help determine where you’re permanently located. If you spend equal time in houses in two states and only file income taxes in one of the states, it’s likely that the IRS and courts will consider the home in that state to be your primary residence. If you work in both states and owe income taxes in both places, this test may not be enough to pin down your principal home.
All legalese aside, your primary residence is where you make your “home base.” Because of this, many personal details may tie you to one area more than the other. The IRS will examine where you vote, your official address on your driver’s license, where you receive mail, where you bank and other ties you may have in each area, such as memberships in clubs and churches. Because there isn’t a hard-and-fast rule to determining where you principally reside, the courts consider several factors when attempting to pin down your residency.
Renting Your Home
If you’re selling a home and hope to use the exemption for capital gains on the sale, the IRS provides some leeway for rental units. Regardless of whether you currently live in a home you’re selling, if you lived in it at least two of the past five years and rent it the remainder of the time, the IRS allows you to claim the home as your primary residence.
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