Discharge (or Cancellation) of Debt (Part 2 of 4)

Discharge (or Cancellation) of Debt (Part 2 of 4)

What is a Qualified Principal Residence?

Arlington Heights Lawyer, Robert S. Thomas explains the Mortgage Debt Forgiveness Act looks to IRC § 121 for the definition of a Principal Residence as:

1. The property must have been both “owned and used” as the taxpayer’s principal residence for periods aggregating 2 or more years.  Treas. Reg. § 1.121 -1(a);

2.  The principal residence does not have to be located in the United States. Treas. Reg. § 1.121-1;

3.  If the taxpayer alternates between two properties, the primary residence will be the property used a majority of the time during the year. Treas. Reg. §1/121-1(b)(2).

4. During any five year period, a taxpayer can have more than one principal residence if each residence has been the taxpayer’s principal residence for two years. Treas. Reg. §1.121 -1(b)(4).

5. “Owned and used” can be satisfied by showing ownership and usage for twenty-four full months, or 730 days, either concurrently or for non-concurrent periods, if both usage and ownership exist for 730 days ending on the date of the “identifiable event.” Treas. Reg. §1.121–1(c)(2)(i). Seasonal absences when coupled with rental of the property are counted toward occupancy but each case depends on the facts and circumstances of that case. Id.

6.  Relevant factors, but not limited to the following factors, in determining a taxpayer’s principal residence, are: (1) taxpayer’s place of employment; (2) principal abode; (3) address used on tax return; (4) address on driver’s license, car registration, or voter registration; (5) location of church and recreational clubs or activities to which the taxpayer is affiliated. Treas. Reg. §1/121-1(b)(2).

7.  Property that may be used as a principal residence may include a detached family residence, a houseboat, house trailer, condominium, or cooperative. Treas. Reg. § 1.121-1(b)(1).

8.  In transfers of property between spouses in a divorce, the period the transferor spouse owned the property is included in the period that the transferee spouse owned the property.  However, the period that the transferor spouse used the property is not included in the period the transferee spouse used the property. Treas. Reg. § 1.121.-4(b)(2).

For any questions or concerns, please feel free to contact the law office of Arlington Heights attorney Robert S. Thomas.  To read Discharge of Debt part one, three or four click on each link.