How Does a Principal Residence Work?

A principal residence is the place where you live most of the time, such as a house, condo, or even a houseboat. The identification of a principal residence is important for tax purposes, such as to determine residency status for state taxes or to claim a homeowner’s deduction.

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.”

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.2

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.