Principal Residence Exemption

Plain meaning

A tax rule that can reduce or eliminate capital gains tax on the sale of a qualifying principal residence.

Also called

Key points

• The exemption can shelter all or part of a capital gain on a qualifying principal residence.
• Only one property per family unit can generally be designated as a principal residence for a particular year after 1981.
• A property must ordinarily be inhabited in the year by the taxpayer, spouse or common-law partner, former spouse or common-law partner, or child, subject to detailed rules.
• Disposition reporting is generally required even when the gain is fully sheltered by the exemption.
• Change-in-use, rental, flipping, trust, and non-resident situations can complicate the result.

Why it comes up

Housing news often connects affordability, reporting obligations, property sales, and tax treatment.