How does the IRS define primary residence?

September, 09 2020 by Karen Thomas-Brandt, EA and Carolyn Richardson, EA, MBA

Res-i-dence (noun): A person’s home; the place where someone lives; the act or fact of dwelling in a place for some time; a building used as a home.

A primary residence is a seemingly simple concept – everyone knows where they live, right? But when it comes to your primary residence in a tax sense, many taxpayers find it difficult to determine where that primary residence might be. Is it where I spend most of my time? Is it where I work? Is it where I own a home? And, my favorite: Is it where I will pay the least tax? To add to the complication when it comes to taxes, a primary residence is not the same thing as a “domicile” or “tax home” when it comes to certain tax benefits and burdens.

Identifying your primary residence is especially important if you have sold a home. For tax purposes, the sale of a primary residence is treated quite differently than the sale of a second home or a mixed-use home (a home used personally for part of the year and rented out for part of the year). For instance, if I (and my spouse) sell our primary residence where we have lived the last two out of five years, we might qualify to exclude up to a $500,000 gain. On the other hand, if this is our second home or a mixed-use home, such an exclusion would not be an option for us. There may also be state tax benefits associated with your primary residence that you don’t want to miss out on, such as homestead exemptions or heating oil credits.
 

Where do you spend the most time?

The IRS indicates that the most important factor in determining your “primary residence” is where you spend the most time. For many taxpayers, though, that may be difficult to determine, particularly for taxpayers who have more than one home. However, if you live in more than one home, there are other factors to consider. These factors are:

• The address where you are registered to vote.
• The address you use on your federal and state tax returns.
• The address listed on your driver’s license or car registration.
• The address on file with the U.S Postal Service.

The length of time any of these factors have applied to that particular dwelling may also be an influencing factor in determining a primary residence for tax purposes. The address where you have voted and filed your returns from for many years is less likely to be questioned than one you used for one or two years. In addition, the IRS considers your primary residence as that residence close to:

• Where you work.
• Where you bank.
• Where your family members live.
• Where you are part of a club or organization.

Some situations in which you might need to consider these factors are:

• You and your spouse “summer” in one state and “winter” in another state; you also split your time between states and travel during the other months. In this situation, you may need to count actual days/nights spent in each state or consider the other factors, such as the state in which you are registered to vote or the address on your driver’s licenses, OR
• You and your spouse live in separate states and, therefore, separate residences the entire year, visiting each other on the weekends. In this situation, you may each have your own primary residence, in two different states.

In summary, the IRS generally considers your primary residence to be the home where you spend the most time. If you split your time between more than one house and are trying to determine your eligibility to exclude gain from a home sale from your taxable income, be sure to take a look at the numerous factors the IRS considers when determining your primary residence.