Can You Have Two Primary Residences If Married Filing Jointly?

Getting married and having multiple homes are blessings to enjoy, but a tax exemption for two primary residences isn’t among the benefits of such a situation. For federal tax purposes, an individual generally has only one main home at a time, even when a married couple owns or lives in more than one property. Understanding what qualifies as a primary residence is paramount, as it impacts tax liabilities and unlocks a range of benefits, from exclusions on capital gains taxes to various tax credits and deductions. Here’s how to tell which home is your primary residence and the exceptions lenders make for two primary residences.

A financial advisor can help you optimize your financial plan to lower your tax liability.

Can You Have Two Primary Residences If Married Filing Jointly?

The U.S. tax code provides tax advantages for married couples who file jointly and own a home. While duplicating these tax benefits with another residence would help your bottom line when you file taxes, the IRS generally treats only one property as your main home at a time for federal tax provisions that depend on principal-residence status.

If you own and live in two homes, the IRS looks at the facts and circumstances to determine which one is your main home. Where you spend the most time is the most important factor, although your mailing address, voter registration, tax-return address, driver’s license, employment location and other connections can also matter. This requirement means you’ll receive specific tax benefits for one property every year, such as potentially excluding gain from the sale of your main home when the applicable requirements are met.

Outside of your tax circumstances, having two primary residences is possible on the lender side. For example, a married couple could acquire two primary residences if each spouse buys a primary residence and keeps their mortgages separate. This would mean each spouse having sufficient income on their own to buy a home.

Additionally, conventional loans can create a second primary residence in some situations. For example, buying a home for an adult child or disabled parent means that home is a primary residence, even if you have a primary residence already.

Likewise, co-signing on someone else’s mortgage for their primary residence gives you partial ownership. However, these situations don’t mean you get to tell the IRS you have multiple primary residences. Federal tax treatment follows the IRS rules that apply to the particular deduction, exclusion or other provision rather than a lender’s occupancy classification.

What Qualifies as a Primary Residence?

Why Does a Primary Residence Matter?

The distinction of a primary residence, or “main home,” matters for homeowners. There are specific tax incentives and benefits tied to this designation.

Tax Exclusions and Lower Mortgage Rates

One of the key benefits is the ability to avoid capital gains taxes. You can exclude $250,000 of profit from the sale of a primary residence from capital gains taxes. Joint filers (such as married couples) can exclude up to twice as much capital gain as a single filer. A married couple filing jointly can exclude up to $500,000 of gain. They must meet specific ownership, use, and other requirements to qualify. ¹

Selling your primary residence and buying another one usually involves getting a mortgage. Lenders usually offer lower interest rates for primary home purchases because homeowners prioritize paying for their main home over secondary properties.

1031 exchange rules

The 1031 Exchange Law allows you to sell an investment property and defer capital gains taxes by purchasing another investment property of similar value. This rule doesn’t apply to primary residences and can introduce challenges if you want to convert your investment property to your primary residence. If you acquired a property through a like-kind exchange and later use it as your main home, special rules apply. In general, the Section 121 home-sale exclusion cannot apply if you sell the property during the five-year period beginning on the date you acquired it in the exchange. ²

Proving a Principal Residence for Tax Purposes

Typically, proving your main home depends on where you spend your time, where you vote, and where you receive mail. For example, the primary residence you list on your tax forms should match your driver’s license and voter registration card. Similarly, bank statements, insurance policies, and mortgage documents can show your principal residence. If you recently moved, utility bills are helpful to prove where you live. 

Additionally, a mobile home, apartment, or boat can be your primary residence if it has a sleeping area, a kitchen, and a bathroom. If you rent and live in an apartment, that property is your main home even if you own another house.

Remember, traveling abroad for parts of the year or being away because of an illness doesn’t disqualify you from having a primary residence. Likewise, if you’re an active military member, prolonged absences from your home won’t affect your primary residence’s status.

How Living in Two States Can Affect Your State Taxes

Having homes in two states introduces a separate question from which property counts as your main home for a federal tax provision. States use their own residency rules to decide who must file a resident income tax return. Those rules commonly consider domicile, time spent in the state, and other connections, but the exact tests vary by state.

A person generally has one domicile, meaning a permanent home they always return to after an absence. Owning a second house does not by itself create a second domicile. However, some states can treat a person as a resident for income tax purposes even when they live elsewhere. If a person maintains a home in a state and satisfies it’s statutory residency test, they could face additional taxes.

For example, a couple could regard one state as their permanent home and still utilize a second property. Depending on each state’s rules and the number of days spent there, they could face filing obligations in both states. Credits for taxes paid to another state may reduce double taxation in some situations. However, the available credit and the income it covers depend on state law.

Keeping records can be particularly important when time is divided between states. This includes things like tracking days spent at each property and consistent addresses on licenses, tax filings, etc. These can help document where the couple actually lives and which state they treat as their permanent home.

Tax Exemption for a Principal Residence

When you sell your home, you can exclude a significant portion of the profit from capital gains taxes. However, to qualify for this tax break, the home must meet the IRS definition of a principal residence. This basically means you can prove you live there most of the time. This rule becomes especially important for married couples who own more than one property.

For a married couple filing jointly to qualify for the exclusion, time is a factor. At least one spouse must have owned the home for at least two of five years before the sale. And both spouses must have used the home as a residence during that time, not just one. The couple must also satisfy the applicable look-back requirement concerning use of the exclusion on another home.

There are exceptions for unique circumstances. For example, say a couple maintains two homes because of work or family obligations. The IRS will still require them to designate one as the principal residence. It bases this on factors like where you spend the most time, receive mail, and register to vote. In some cases, partial exclusions may apply if you sell a home due to unforeseen events. These include things like a job relocation, health issues, or other qualifying hardships.

Tax Advantages for Selling a Primary Residence

When you profit off a home sale, you could be on the hook for capital gains tax. However, married couples can get a tax exemption of up to $500,000 of those capital gains.

For example, say you and your spouse make $300,000 selling a home. If it served as your principal residence, you would owe no capital gains taxes through this exemption. And, if you make $750,000, your first $500,000 of gains are exempt. This means you would only pay taxes on $250,000. These results assume the couple qualifies for the full exclusion and that no other rules require taxing the gain.

Bottom Line

For federal tax purposes, an individual generally has only one main home at a time, even when a married couple owns residences in different states. Which home qualifies depends on the facts and circumstances, with the amount of time spent at each property carrying significant weight. State income tax residency is a separate issue and can create filing requirements in more than one state. The designation of a primary residence, or “main home,” holds significant importance for homeowners due to the array of tax benefits tied to this status. Therefore, understanding the implications of a primary residence designation is vital for navigating the complexities of tax advantages and ensuring a favorable financial outcome when selling a home.

Tips for Primary Residences When Filing Jointly as a Married Couple

• Selling your home incurs capital gains taxes if you surpass the exclusion threshold or don’t qualify for an exemption. Luckily, a financial advisor can help optimize your financial plan to lower your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Selling real estate might result in taxes if it’s not your primary residence – and that’s okay. You can navigate the capital gains situation on the sale of your second home or other piece of property, maximizing your profits. 

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