10 Oct Dwelling Unit vs. Primary Residence
Many taxpayers have both a dwelling unit and a principal place of residence. Understanding the difference between the two is important for a wide variety of reasons. The file that landed on my desk today involves such a matter. The taxpayer has a dwelling unit in Texas (where there is no state income tax) and a principal place of residence in Colorado (where there is a state income tax). Because the tax payer was afforded bad advice by his previous tax return preparer he now finds himself in quite a mess that requires filing amended tax returns going back 3 tax years. If you are fortunate enough to have both a primary residence and a dwelling unit, make sure that you understand the difference between the two AND properly list your PRIMARY RESIDENCE on your tax returns.
Under Reg. §1.280A-1, a dwelling unit includes a house, apartment, condominium, mobile home, boat or similar property that provides basic living accommodations, such as sleeping space, toilet and cooking facilities. However IRS Reg. §1.121-1(b) states that if a taxpayer alternates between two properties, using each as a residence for successive periods of time, the property that the taxpayer uses the majority of the time during the year ordinarily will be considered the taxpayer’s principal residence.
If you are unsure and state law doesn’t provide clarity on residency requirements the general rule of thumb when dealing with the IRS is to count and document the number of nights spent in each location throughout the duration of the tax year (365 nights total). Which ever location the most nights were spent at can generally speaking for the most part be represented as your principal place of residence.