What Is a Primary Residence?

Definition and Example of a Primary Residence

Your primary residence is the home you live in and spend most of your time in. You can’t have more than one primary residence.

• Alternate name: Principal residence

You’ll likely qualify for lower rates when you buy a primary residence as opposed to an investment property. Your primary residence also will come with certain tax benefits.

You may be surprised to learn that your primary residence doesn’t necessarily have to be a single-family house. Apartments, condos, and townhomes can all be considered primary residences, as can boats or mobile homes. If it’s the place you live and spend most of your time in, it’s considered a primary residence.

How a Primary Residence Works

When you apply for a mortgage, your lender may ask how you plan to use the property. If you plan to live in the home for the majority of the time, it’s considered your primary residence.

If you own and live in one home, that’s automatically classified as your primary residence. But if you own multiple properties, the IRS uses a “facts and circumstances” test to determine your primary residence.

Here are some factors that are used to determine if your property is a primary residence, with the more of these factors being true, the more likely your home is to be your main residence:

• It’s the home where you spend the most time.
• The home is listed on your driver’s license, federal and state tax returns, voter registration card, and as your U.S. Postal Service address.
• The home is near your work, your bank, the residence of other family members, and clubs or religious organizations you participate in.

Benefits of a Primary Residence

If you’re new to homeownership or considering buying a home, you may not be aware of the benefits of owning a primary residence. Here are the most significant benefits to consider:

• Mortgage rates: Mortgage rates tend to be lower for a primary residence than for a secondary home or investment property. A lower interest rate can save you thousands of dollars over the life of the loan.
• Capital gains tax deduction: If you sell your home in the future, you may qualify for exemptions on your capital gains taxes if it’s your primary residence. You can exclude the first $250,000 in gains if you meet the principal residence requirements. That number increases to $500,000 for married couples filing jointly.
• Mortgage-interest tax deduction: The interest you pay on a mortgage for your primary residence is tax-deductible up to a certain amount. Per the IRS, individuals or single filers can deduct their mortgage interest on the first $750,000 owed. If you’re married and filing separately, you can deduct the interest on the first $375,000 you owe.

Taxpayers who took out a mortgage after Dec. 15, 2017, can deduct only the interest paid on up to $750,000 or $375,000 for married couples filing separately of their mortgage debt. The mortgage interest deduction limit for home loans originated before Dec. 16, 2017, is $1 million for individuals and $500,000 for married couples filing separately.

Other items or costs that might be deductible from your taxes include prepaid interest or mortgage points, eligible late payment charges, prepayment penalties for paying off the loan early, mortgage interest paid before the date of sale, and interest paid if participated in the Hardest Hit Fund and other emergency loan programs.

Primary Residence vs. Investment Property

A primary residence is a home you live in for the majority of the year. It’s usually located near your work or any organizations you’re involved in, and your tax documents typically support that it’s your primary residence. If you recently bought a primary residence, your mortgage may require that you begin living in the home within a certain time period, such as within 60 days of closing on it.

In comparison, an investment property is a home you have no plans to live in. People usually buy investment properties to flip them for a profit or rent them out for recurring income.