principal residence

Beginner 🏠 Real Estate

Definition

The home where you live most of the year, receiving favorable tax treatment including capital gains exclusions and mortgage interest deductions. The IRS cares deeply about distinguishing this from your 'vacation home' to prevent creative accounting.

Example Usage

By living in the property for two of the past five years as their principal residence, they excluded $500,000 in capital gains from taxes when selling.

Origin

Tax law terminology distinguishing primary dwellings from investment or secondary properties

Fun Fact

You can only have one principal residence at a time, but you can change which property qualifies, leading to strategic timing of sales for tax optimization.

Source: IRS tax code and regulations

Related Terms

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