The exact definition of a principal residence can vary based on the agency making the determination. For example, the IRS states that a principal residence means “your main home.”
Alternate name: primary residence, domicile
Even if you own multiple homes or split your time equally between multiple locations, such as if you live with family for half the year and rent your own place elsewhere for the other half, you only have one primary residence. While the amount of time you spend there is generally the biggest factor in determining your principal residence, other factors include the address you use for official purposes, such as receiving mail and filling out tax returns.
What Does a Principal Residence Mean for You?
The designation of a principal residence can come into play in several ways. One common way a principal residence can affect your taxes is related to homeownership. For example, if you sell your principal residence, you may be able to exclude up to $250,000 ($500,000 if married filing jointly) in proceeds from your federal income taxes. Your principal residence could also make you eligible for a homeowner’s exemption on your property taxes. The rules vary by jurisdiction. For example, in California, homeowners are eligible to have $7,000 deducted from the assessed value of their primary residences. But if you own two homes in the state, you can’t take the exemption on both, even if you and your spouse technically own them separately. In this case, your principal residence is the one where you plan to live permanently. Identifying your principal residence can be important for renters, too. For example, in Massachusetts, renters may be able to deduct 50% of the rent paid for their principal residence (up to $3,000) on their income tax return. But certain exclusions apply; for example, a college student who rents a dorm room in Massachusetts wouldn’t qualify.Principal residences can also come into play when you’re determining your residency for state income tax purposes. For example, if you have a principal residence in New York state, you have to file taxes as a resident there—even if you don’t currently live there, for as long as you intend to return to that home. Someone out of the state on military assignment or who lives in a warmer climate for the winter would still be a New York resident if they have a principal residence there and plan to return to it.
The Bottom Line
Understanding what a principal residence is can help you file your taxes correctly and potentially save money. Based on your principal residence, you may be eligible for certain deductions, so it’s good to know what rules apply to your circumstances. Plus, you want to be sure you don’t make a filing mistake, like not filing as a resident even though you maintain a principal residence in a particular state. Making a home your principal residence can also come into play when applying for a mortgage, as you may be eligible for a lower rate on a primary residence compared with a second home.
