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Principal Residence Exception

The Principal Residence Exception refers to a tax advantage or relief that is part of Section 121 that is given to individuals when they sell their primary or principal residence.

Principal Residence Exception is a tax provision that allows homeowners to exclude from taxable income a portion (or in some cases, all) of the capital gains realized from the sale of their primary or principal residence. The specifics of this exception can vary by country and region, but its main purpose is to provide tax relief to individuals who are selling their primary home.

For example:

  • In the United States, the Internal Revenue Service (IRS) allows individuals to exclude up to $250,000 ($500,000 for married couples filing jointly) of capital gains on the sale of their primary residence, provided they meet certain criteria, like having lived in the home for at least two of the previous five years.
  • In Canada, the Principal Residence Exemption, as it’s commonly known, allows homeowners to avoid paying capital gains tax on the appreciation of their home’s value when they sell it, provided it has been their primary place of residence for every year they owned it.

It’s essential to consult with a tax professional or familiarize oneself with local tax codes when considering the implications of the Principal Residence Exception, as rules and criteria can change and may differ based on jurisdiction.