Sec 121 Two Houses, which is principal residence

[Randall]

A person owns two houses, none is ever rented.  Sells one of the homes.  What constitutes which home is his primary residence?  Would the amount of time spent at each home establish the primary residence?  Would this have to be for each calendar year?  The wording in 1.121 reg says 'for periods aggregating two years' in the past five years.  Assuming about 50/50 of their time is at each home, would the total of the last four years qualify aggregating the two years?

[kathyc2]

Are they in the same state or different states?

If different, the state they file tax as a resident, where cars are plated, voter registration, etc. should tell you which is main home.

Also, many states offer some kind of RE tax exemption for primary or main residence which would indicate which is the main home. 

[GLGACCT]

Read section 1.121-1(b)2:

(b) Residence—(1) In general. Whether property is used by the taxpayer as the taxpayer's residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer's residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation (as those terms are defined in section 216(b)(1) and (2)). Property used by the taxpayer as the taxpayer's residence does not include personal property that is not a fixture under local law.

(2) Principal residence. In the case of a taxpayer using more than one property as a residence, whether property is used by the taxpayer as the taxpayer's principal residence depends upon all the facts and circumstances. If a taxpayer alternates between 2 properties, using each as a residence for successive periods of time, the property that the taxpayer uses a majority of the time during the year ordinarily will be considered the taxpayer's principal residence. In addition to the taxpayer's use of the property, relevant factors in determining a taxpayer's principal residence, include, but are not limited to—

(i) The taxpayer's place of employment;

(ii) The principal place of abode of the taxpayer's family members;

(iii) The address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;

(iv) The taxpayer's mailing address for bills and correspondence;

(v) The location of the taxpayer's banks; and

(vi) The location of religious organizations and recreational clubs with which the taxpayer is affiliated.

 

[Randall]

Both houses are in same state.  Yes, Ky offers a senior discount on RE tax but not a full exemption.  I will check if the discount applies to mulitple residences.  I was wondering about mailing address and the other things like voter registration.  A lot of these things could go either way I suppose, not necessarily the final say on primary.  I was thinking time spent at each home would be the deciding factor.

[Randall]

Thanks GLGACCT.  i - couple is retired and has been over 5 years.  ii - couple is older, children grown so only two spouses are family members.  I'm wondering if iii - vi are absolute deal breakers or not.

[Lee B]

9 minutes ago, Randall said:

Thanks GLGACCT.  i - couple is retired and has been over 5 years.  ii - couple is older, children grown so only two spouses are family members.  I'm wondering if iii - vi are absolute deal breakers or not.

Definitely

[Lion EA]

Be careful if it looks like one house is their principal residence, but they told their state &/or locality that the other house qualifies for a homestead credit or senior tax relief or....

Is this a new/potential client? If so, you might want to decline if you don't feel they are giving you the whole story.

If this is a continuing client, you probably have a good feel for which is their principal residence. What address was on their tax returns? Other official documents? Mailing address for important things like bills? Does their insurance company list a principal residence and a second home; an address where their cars are garaged? How far apart are their houses? Do they go to doctors, church, recreation near one house. Which house has their good furniture, artwork, photo albums, near & dear stuff?

GLG gave you the code section.

[mcb39]

Because I, personally, have the same situation, I agree with all of the above.  Mine are both in the same state and the older we get, the more time we spend at the second home.  However, our mail, our drivers licenses, our voting rights, our property tax credit, etc are all at the main (original) home.  This is also where I maintain my main office and there has never been any doubt in my mind.  In case of a sale, this would be the house that qualifies for the CG credit.; even though either one possibly could.

[Randall]

On 1/12/2024 at 1:59 PM, Lion EA said:

Be careful if it looks like one house is their principal residence, but they told their state &/or locality that the other house qualifies for a homestead credit or senior tax relief or....

Is this a new/potential client? If so, you might want to decline if you don't feel they are giving you the whole story.

If this is a continuing client, you probably have a good feel for which is their principal residence. What address was on their tax returns? Other official documents? Mailing address for important things like bills? Does their insurance company list a principal residence and a second home; an address where their cars are garaged? How far apart are their houses? Do they go to doctors, church, recreation near one house. Which house has their good furniture, artwork, photo albums, near & dear stuff?

GLG gave you the code section.

Thanks.  I agree.  Actually this is an existing client and I have only given them the projected gain and tax.  I thought of the 121 exclusion possibility myself and haven't brought that up to them.  He is going to ask his investment advisor for possibilities and I wonder if they would bring this up so I'm just trying to get ahead of that.  I agree with all the comments and it really doesn't look like the house to be sold can qualify as their primary residence.  The sale will be in 2024 so not urgent although they may have to make a 1stQ es payment.

[Lion EA]

If they're not selling until 2024-25, lay out the definition of primary residence for them, and they can make it fit -- or not.

They can record where they sleep each night, adjust paperwork to receive bills and statements at that address, garage their cars there for insurance, pension check and SS are probably direct deposit anyway, truly move themselves for 730 (or is is 731 when a leap year intrudes?) days out of the five years prior to the sale date. If they are using one out of two houses as their primary residence, then they should be using the address of their primary residence on their tax returns.

[Randall]

26 minutes ago, Lion EA said:

If they're not selling until 2024-25, lay out the definition of primary residence for them, and they can make it fit -- or not.

They can record where they sleep each night, adjust paperwork to receive bills and statements at that address, garage their cars there for insurance, pension check and SS are probably direct deposit anyway, truly move themselves for 730 (or is is 731 when a leap year intrudes?) days out of the five years prior to the sale date. If they are using one out of two houses as their primary residence, then they should be using the address of their primary residence on their tax returns.

I think it's too late for that.  Sale pending, closing in a couple of weeks.  Early 2024.

[kathyc2]

2 hours ago, Randall said:

The sale will be in 2024 so not urgent although they may have to make a 1stQ es payment.

They may have a balance due when 2024 is filed, but if they have paid in 100% (110%) of 2023 liability they won't have a penalty. 

[Lion EA]

1 hour ago, Randall said:

I think it's too late for that.  Sale pending, closing in a couple of weeks.  Early 2024.

Sorry. It was a thought. It is what it is. Ask lots of questions to understand their situation. Then stand your ground. Don't let your clients or their investment advisor push you to report anything incorrectly.

[Pacun]

Let's say you are registered to vote 10 years ago using house 2, and during the previous 5 years you filed your Federal taxes using the address for house 1. What's wrong with using house 1 as primary residence since that's the record the IRS has.