Learn something new every day More Info... by email
Also known as a permanent address or primary location, the principal residence is the location that an individual designates as the place where he or she lives for the majority of the calendar year. Identifying this primary residence is often necessary from a tax perspective, but also has practical aspects that relate to matters like voter registration, or applying for a driver’s license. There are usually several criteria that are used to define whether the residence is truly primary, or is in actuality a secondary home.
For tax purposes, a principal residence is the dwelling where the taxpayer lives for the majority of the tax year. Depending on laws drafted by the national tax agency that has jurisdiction, different qualifications must be met in order for the residence to be identified as primary. In some countries, the owner must physically reside on the property for at least six months of the year, identify the residence at a home address for various legal documents, and identify the home as the primary residence with a postal system. There may also be the necessity of listing the address as the principal residence when registering to vote in local, state, and national elections.
Making this identification can be very important for anyone who owns multiple properties, such as summer homes or investment properties. In terms of taxes, many nations utilize one tax table to assess taxes on the primary or principal residence, while a different schedule is used to determine taxes owed on vacation homes and other real estate holdings. Typically, registering to vote requires identifying a primary residence as a means of ensuring that the owner cannot register in several different locations under several different addresses, and cast several votes in a single election. Designation of a primary residence is also often necessary in order to obtain insurance, since the premiums are often affected by location.
The issue of paying capital gains taxes is also key to the designation of a principal residence. In the event that the owner purchases another permanent residence that has the same or greater value, there is a good chance that the seller will realize a deferred gain on the sale of the home. As a result, the seller pays a lower tax burden, and is able to keep more of the proceeds from the sale of the property.
Just about any type of dwelling can be identified as a principal residence. Along with a home or apartment, the primary residence may be a mobile home that is placed on a rental lot. Evan a boat that has a permanent slot or dock along a waterway can be designated as a principal or primary residence in most countries around the world.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!