Raleigh, NC asked in Tax Law for North Carolina

Q: How is "Principal Residence" defined for the purposes of getting the $250k tax exemption when selling a home?

I am living in two different homes in two different states depending on season etc. I typically live a few monhts in one of the two homes, and then I move to the other and live there for a while. This has been my situation for 10 years. I own one of the homes (State A) but the other home (State B) is owned by my partner.

For various reasons, I have "declared" home B as my primary residence (the home I do NOT own). But in reality I have lived in home A (the home I own) for at least half of the time.

I would like to sell home A and avoid capital gains tax by qualifying for the $250k exemption for selling a home.

Question: how is "Principal Residence" defined? I have filed taxes in the state where home B is and my driver's license shows the home B address. However, I have physically resided (slept) in home A AT LEAST 2 of the last 5 years. So, what is more important for tax purposes - where I have physically lived OR where I have my driver's license address?

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1 Lawyer Answer

A: My partner, Kacie wrote on article in the Tax Adviser on this topic. See here https://www.thetaxadviser.com/issues/2019/apr/involuntary-conversion-principal-residence.html#:~:text=A%20direct%20involuntary%20conversion%20of,does%20not%20recognize%20a%20gain.

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