Principal Residence Exemption (PRE) is a tax benefit in many countries that allows homeowners to exempt a portion or all of the capital gains made on the sale of their primary residence. Here are some key takeaways, examples, tips, recommendations, and advice:
Key-Takeaway
- The PRE exempts a portion or all of the capital gains made on selling a primary residence.
- To be eligible, the property must have been used as the primary residence for a certain period of time, typically two of the five years prior to the sale.
- The exemption amount varies by jurisdiction and may have an upper limit or phase-out for high-income taxpayers.
Example
- A homeowner who has lived in their house for 5 years and sells it for a profit of $100,000, with a $250,000 PRE exemption, would only be taxed on $50,000 of their capital gains.
- A homeowner who has lived in their house for 2 years and sells it for a profit of $50,000, with a $250,000 PRE exemption and a phase-out for high-income taxpayers, may not be eligible for the total exemption and may only receive a partial PRE.
Tips
- Make sure to properly document the use of the property as the primary residence to support the PRE claim.
- Consider the timing of the sale to maximize the benefit of the PRE, considering any phase-out or upper limits.
- Seek the advice of a tax professional to determine eligibility and the amount of the PRE.
Advice
- Refrain from assuming that the PRE applies automatically, and always consult with a tax professional to determine eligibility and the amount of the PRE.
- Be prepared to provide documentation of the use of the property as the primary residence if requested by the tax authorities.
Recommendations
- Plan ahead and consult with a tax professional to understand the eligibility criteria and calculate the amount of the PRE.
- Keep accurate records of the use of the property as the primary residence.
- Consider the timing of the sale to maximize the PRE’s benefit.
Conclusion
The Principal Residence Exemption can provide significant tax savings for homeowners who sell their primary residence for a profit. By planning ahead and seeking the advice of a tax professional, homeowners can ensure they receive the full benefit of the PRE and minimize their tax liability.