How is the term principal residence defined?

The term principal residence refers to the primary home where an individual or family resides most of the time. This definition is important as it distinguishes a principal residence from other types of properties, such as investment properties or vacation homes. The principal residence typically serves as the main place of living, where someone spends the majority of their time, and it is often the residence that qualifies for tax benefits, such as exclusion of capital gains on sale or mortgage interest deductions.

In contrast, properties that are primarily used for rental income or as temporary living arrangements during renovations do not fit the definition of a principal residence since they are not the main dwelling of an individual. Similarly, a vacation home, which is used infrequently, also does not qualify as a principal residence because it lacks the level of primary occupancy required to meet this definition. Understanding the distinction between these types of properties is key for various financial and legal reasons within real estate practice.