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Income taxSubject 17 of 19

Principal residence

A principal residence is a person's main home for tax purposes, determined from use and the applicable facts and rules.

Direct answer

What does principal residence mean?

A principal residence is a person's main home for tax purposes, determined from use and the applicable facts and rules.

Exam cue: A seller who owned and lived in the home for at least 2 of the 5 years before the sale can generally exclude up to $250,000 of gain, or $500,000 for most married couples filing jointly.

What does it look like in a question?

Example

A taxpayer reviews time owned and used as a main home before claiming an exclusion.

Common exam trap

What should you not confuse it with?

Principal residence is not necessarily every property a person owns or visits.

Related income tax terms

Adjusted basisAdjusted basis is the original basis increased or decreased by tax-law adjustments such as qualifying improvements and allowed depreciation.Amount realizedAmount realized is the total value received on a disposition, adjusted for selling expenses and other items as tax law provides.BasisBasis is a tax measurement used to determine gain, loss, depreciation and other tax consequences for property.Capital gainCapital gain is the gain from the sale or exchange of a capital asset, calculated under tax law and subject to classification and exclusions.Depreciation recaptureDepreciation recapture is the tax rule that can recharacterize or specially tax part of gain tied to prior depreciation deductions.Like-kind exchangeA like-kind exchange is a tax-deferred exchange under Internal Revenue Code section 1031 for qualifying real property held for investment or productive use in a trade or business.
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