Main Home: What It Is, How It Works, Transfer

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

What Is a Main Home?

Main home is the term used by the Internal Revenue Service (IRS) to indicate the home a taxpayer has lived in most of the time during a given taxation year or the only home a taxpayer owns.

The classification of a taxpayer’s main home is important when considering gains from selling a main home. Because the tax code recognizes homeownership, it allows you to limit or partially exclude capital gains when you sell your main home.

Key Takeaways

• A residence is designated as a main home for the purposes of excluding capital gains tax (up to $250,000 for single filers or $500,000 for married filers) on the sale of that home.
• Where you live is your main home if you spend the majority of your time there; vacations and other brief absences don’t count against the time you spend in your main home.

How a Main Home Works

Capital gains on the sale of a main home up to $250,000 for single filers, and $500,000 for married, joint filers, may be excluded from your income for tax purposes if you pass the ownership and use tests.

You cannot exclude capital gains from the sale of your home if you:

• Acquired the property through a like-kind exchange (1031 exchange), during the past five years
• Are subject to expatriate tax

The Internal Revenue Code (IRC) incentivizes people to live in one home, and the capital gains tax exclusion is a benefit given with the understanding that taxpayers have a right to the sweat equity they put into their primary living space.

Determining What Qualifies as a Main Home

If you own or live in more than one home, you must apply a facts and circumstances test to determine which property is your main home.

Time Spent in the Main Home

While the most important factor is where you spend the most time, other factors are considered, such as the address listed on your driver’s license, voter registration, or other government documents.

Time spent on vacation does not count as time living in another home, even if you rented your main home to another tenant while on vacation. The IRS also considers where you work, where you bank, where your family lives, and the location of any recreational clubs or religious organizations of which you are a member.

If over the previous five years you have owned the home for more than two years, and it was your main home for more than two years, then you can take the capital gains exclusion.

Home Is Where the Living Is

The capital gains tax exclusion can apply to many different types of homes, including a single-family home, a condominium, a cooperative apartment, a mobile home, or a houseboat. Losses resulting from the sale of your main home cannot be deducted.

If you become physically or mentally unable to care for yourself, you only need to show that your home was your residence for 12 months out of the 5 years leading up to the date of sale. According to the IRS, any time you spent living in a care facility (such as a nursing home) counts toward your residency requirement, as long as the facility is licensed to care for people with your condition.

The IRS also has a "look back" requirement that says if you did not sell another home during the 2-year period before the date of sale of your main home (or, if you did sell another home during this period, but didn’t take an exclusion of the gain earned from it), you can take the exclusion of the gain from your main home.

Transfer of a Main Home

If you transferred your home, or share of a jointly owned home, to a spouse or ex-spouse as part of a divorce settlement, any appreciation of the home since its purchase goes untaxed. The one exception to this rule is if your spouse or ex-spouse is a nonresident alien. In this instance, you likely will have a gain or loss from the transfer.

If you transferred your home, or share of a jointly owned home, to a spouse or ex-spouse as part of a divorce settlement, any appreciation of the home since its purchase goes untaxed. The one exception to this rule is if your spouse or ex-spouse is a nonresident alien. In this instance, you likely will have a gain or loss from the transfer.