What is 'Main Home'
Main home is term the Internal Revenue Service (IRS) uses 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 resulting from selling a main home, because the tax code recognizes the importance of home ownership, by allowing you to partially exclude capital gains when you sell your main home.
BREAKING DOWN 'Main Home'
Capital gains on the sale of a main home can be excluded from your income for tax purposes if you pass the ownership and use tests. 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 exclude up to $250,000 in a given tax year. Married couples filing jointly can exclude up to $500,000 in capital gains from the sale of a main home. Losses resulting from the sale of your main home cannot be deducted.
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, then you likely will have a gain or loss from the transfer.
Determining 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. While the most important factor is where you spend the most time, other factors are considered, like what address is 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 takes into account 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. The 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.
Your home sale isn’t eligible for the exclusion if you acquired the property through a like-kind exchange during the past 5 years, or you are subject to expatriate tax.