Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Main Home

What it is:

In the tax world, a main home is where a taxpayer has lived for most of the tax year or is the only home the taxpayer owns.

How it works (Example):

For example, let's assume John Doe buys a house in Austin, Texas, for $150,000. He moves in in April and stays there for six years. Then he sells the house for $225,000, creating a gain of $75,000. Because John lived in the house for most of the tax year and it was his primary residence, the house is his main home. Accordingly, the $75,000 gain on his home is not taxable.

Now let's say that John Doe buys a second home in Austin for $100,000 and rents it out to Jane Smith. He gets sick of being a landlord and sells the house for $125,000, for a $25,000 profit. Because this house is not his main home, the $25,000 gain is probably taxable.
 

Why it Matters:

As you can see, identifying a person's main home has tax consequences. Main homes can be houses, but they can also be houseboats, mobile homes, co-ops or condominiums. The IRS requires taxpayers to live in their main homes for at least two years during the five-year period ending on the date of the sale to avoid taxation on a certain amount of capital gains (typically $500,000 for a couple).