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1040ez forms free download 4. 1040ez forms free download   Unrelated Business Taxable Income Table of Contents IncomeExclusions Dues of Agricultural Organizations and Business Leagues DeductionsDirectly Connected Exploitation of Exempt Activity—Advertising Sales Modifications Partnership Income or Loss S Corporation Income or Loss Special Rules for Foreign Organizations Special Rules for Social Clubs, VEBAs, SUBs, and GLSOsIncome that is set aside. 1040ez forms free download Special Rules for Veterans' Organizations Income From Controlled OrganizationsAddition to tax for valuation misstatements. 1040ez forms free download Net unrelated income. 1040ez forms free download Net unrelated loss. 1040ez forms free download Control. 1040ez forms free download Income from property financed with qualified 501(c)(3) bonds. 1040ez forms free download Disposition of property received from taxable subsidiary and used in unrelated business. 1040ez forms free download Income From Debt-Financed Property Debt-Financed PropertyAcquisition Indebtedness Computation of Debt-Financed Income Deductions for Debt-Financed Property Allocation Rules How to Get Tax Help The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by the exempt organization, less the deductions directly connected with carrying on the trade or business. 1040ez forms free download If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. 1040ez forms free download In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this chapter. 1040ez forms free download Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. 1040ez forms free download For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venturer, the payment is not within the income exclusion for rents, discussed later under Exclusions. 1040ez forms free download Income Generally, unrelated business income is taxable, but there are exclusions and special rules that must be considered when figuring the income. 1040ez forms free download Exclusions The following types of income (and deductions directly connected with the income) are generally excluded when figuring unrelated business taxable income. 1040ez forms free download Dividends, interest, annuities and other investment income. 1040ez forms free download   All dividends, interest, annuities, payments with respect to securities loans, income from notional principal contracts, and other income from an exempt organization's ordinary and routine investments that the IRS determines are substantially similar to these types of income are excluded in computing unrelated business taxable income. 1040ez forms free download Exception for insurance activity income of a controlled foreign corporation. 1040ez forms free download   This exclusion does not apply to income from certain insurance activities of an exempt organization's controlled foreign corporation. 1040ez forms free download The income is not excludable dividend income, but instead is unrelated business taxable income to the extent it would be so treated if the exempt organization had earned it directly. 1040ez forms free download Certain exceptions to this rule apply. 1040ez forms free download For more information, see section 512(b)(17). 1040ez forms free download Other exceptions. 1040ez forms free download   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), to interest or annuities received from a controlled corporation (discussed under Income From Controlled Organizations, later). 1040ez forms free download Income from lending securities. 1040ez forms free download   Payments received with respect to a security loan are excluded in computing unrelated business taxable income only if the loan is made under an agreement that:    Provides for the return to the exempt organization of securities identical to the securities loaned, Requires payments to the organization of amounts equivalent to all interest, dividends, and other distributions that the owner of the securities is entitled to receive during the period of the loan, Does not reduce the organization's risk of loss or opportunity for gain on the securities, Contains reasonable procedures to implement the obligation of the borrower to furnish collateral to the organization with a fair market value each business day during the period of the loan in an amount not less than the fair market value of the securities at the close of the preceding business day, and Permits the organization to terminate the loan upon notice of not more than 5 business days. 1040ez forms free download   Payments with respect to securities loans include: Amounts in respect of dividends, interest, and other distributions, Fees based on the period of time the loan is in effect and the fair market value of the security during that period, Income from collateral security for the loan, and Income from the investment of collateral security. 1040ez forms free download The payments are considered to be from the securities loaned and not from collateral security or the investment of collateral security from the loans. 1040ez forms free download Any deductions that are directly connected with collateral security for the loan, or with the investment of collateral security, are considered deductions that are directly connected with the securities loaned. 1040ez forms free download Royalties. 1040ez forms free download   Royalties, including overriding royalties, are excluded in computing unrelated business taxable income. 1040ez forms free download   To be considered a royalty, a payment must relate to the use of a valuable right. 1040ez forms free download Payments for trademarks, trade names, or copyrights are ordinarily considered royalties. 1040ez forms free download Similarly, payments for the use of a professional athlete's name, photograph, likeness, or facsimile signature are ordinarily considered royalties. 1040ez forms free download However, royalties do not include payments for personal services. 1040ez forms free download Therefore, payments for personal appearances and interviews are not excluded as royalties and must be included in figuring unrelated business taxable income. 1040ez forms free download   Unrelated business taxable income does not include royalty income received from licensees by an exempt organization that is the legal and beneficial owner of patents assigned to it by inventors for specified percentages of future royalties. 1040ez forms free download   Mineral royalties are excluded whether measured by production or by gross or taxable income from the mineral property. 1040ez forms free download However, the exclusion does not apply to royalties that stem from an arrangement whereby the organization owns a working interest in a mineral property and is liable for its share of the development and operating costs under the terms of its agreement with the operator of the property. 1040ez forms free download To the extent they are not treated as loans under section 636 (relating to income tax treatment of mineral production payments), payments for mineral production are treated in the same manner as royalty payments for the purpose of computing unrelated business taxable income. 1040ez forms free download To the extent they are treated as loans, any payments for production that are the equivalent of interest are treated as interest and are excluded. 1040ez forms free download Exceptions. 1040ez forms free download   This exclusion does not apply to debt-financed income (discussed under Income From Debt-Financed Property, later) or to royalties received from a controlled corporation (discussed under Income From Controlled Organizations, later). 1040ez forms free download Rents. 1040ez forms free download   Rents from real property, including elevators and escalators, are excluded in computing unrelated business taxable income. 1040ez forms free download Rents from personal property are not excluded. 1040ez forms free download However, special rules apply to “mixed leases” of both real and personal property. 1040ez forms free download Mixed leases. 1040ez forms free download   In a mixed lease, all of the rents are excluded if the rents attributable to the personal property are not more than 10% of the total rents under the lease, as determined when the personal property is first placed in service by the lessee. 1040ez forms free download If the rents attributable to personal property are more than 10% but not more than 50% of the total rents, only the rents attributable to the real property are excluded. 1040ez forms free download If the rents attributable to the personal property are more than 50% of the total rents, none of the rents are excludable. 1040ez forms free download   Property is placed in service when the lessee first may use it under the terms of a lease. 1040ez forms free download For example, property subject to a lease entered into on November 1, for a term starting on January 1 of the next year, is considered placed in service on January 1, regardless of when the lessee first actually uses it. 1040ez forms free download   If separate leases are entered into for real and personal property and the properties have an integrated use (for example, one or more leases for real property and another lease or leases for personal property to be used on the real property), all the leases will be considered as one lease. 1040ez forms free download   The rent attributable to the personal property must be recomputed, and the treatment of the rents must be redetermined, if: The rent attributable to all the leased personal property increases by 100% or more because additional or substitute personal property is placed in service, or The lease is modified to change the rent charged (whether or not the amount of rented personal property changes). 1040ez forms free download Any change in the treatment of rents resulting from the recomputation is effective only for the period beginning with the event that caused the recomputation. 1040ez forms free download Exception for rents based on net profit. 1040ez forms free download   The exclusion for rents does not apply if the amount of the rent depends on the income or profits derived by any person from the leased property, other than an amount based on a fixed percentage of the gross receipts or sales. 1040ez forms free download Exception for income from personal services. 1040ez forms free download   Payment for occupying space when personal services are also rendered to the occupant does not constitute rent from real property. 1040ez forms free download Therefore, the exclusion does not apply to transactions such as renting hotel rooms, rooms in boarding houses or tourist homes, and space in parking lots or warehouses. 1040ez forms free download Other exceptions. 1040ez forms free download   This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later), or to interest, annuities, royalties and rents received from a controlled corporation (discussed under Income From Controlled Organizations, later), investment income (dividends, interest, rents, etc. 1040ez forms free download ) received by organizations described in sections 501(c)(7), 501(c)(9), 501(c)(17), and 501(c)(20). 1040ez forms free download See Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs, discussed later for more information. 1040ez forms free download Income from research. 1040ez forms free download   A tax-exempt organization may exclude income from research grants or contracts from unrelated business taxable income. 1040ez forms free download However, the extent of the exclusion depends on the nature of the organization and the type of research. 1040ez forms free download   Income from research for the United States, any of its agencies or instrumentalities, or a state or any of its political subdivisions is excluded when computing unrelated business taxable income. 1040ez forms free download   For a college, university, or hospital, all income from research, whether fundamental or applied, is excluded in computing unrelated business taxable income. 1040ez forms free download   When an organization is operated primarily to conduct fundamental research (as distinguished from applied research) and the results are freely available to the general public, all income from research performed for any person is excluded in computing unrelated business taxable income. 1040ez forms free download   The term research, for this purpose, does not include activities of a type normally conducted as an incident to commercial or industrial operations, such as testing or inspecting materials or products, or designing or constructing equipment, buildings, etc. 1040ez forms free download In addition, the term fundamental research does not include research conducted for the primary purpose of commercial or industrial application. 1040ez forms free download Gains and losses from disposition of property. 1040ez forms free download   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or Cutting of timber that an organization has elected to consider as a sale or exchange of the timber. 1040ez forms free download   It should be noted that the last exception relates only to cut timber. 1040ez forms free download The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. 1040ez forms free download Lapse or termination of options. 1040ez forms free download   Any gain from the lapse or termination of options to buy or sell securities is excluded from unrelated business taxable income. 1040ez forms free download The exclusion applies only if the option is written in connection with the exempt organization's investment activities. 1040ez forms free download Therefore, this exclusion is not available if the organization is engaged in the trade or business of writing options or the options are held by the organization as inventory or for sale to customers in the ordinary course of a trade or business. 1040ez forms free download Exception. 1040ez forms free download   This exclusion does not apply to unrelated debt-financed income, discussed later under Income From Debt-Financed Property. 1040ez forms free download Gain or loss on disposition of certain brownfield property. 1040ez forms free download   Gain or loss from the qualifying sale, exchange, or other disposition of a qualifying brownfield property (as defined in section 512(b)(19)(C)), which was acquired by the organization after December 31, 2005 and before January 1, 2011, is excluded from unrelated business taxable income and is excepted from the debt-financed rules for such property. 1040ez forms free download See sections 512(b)(19) and 514(b)(1)(E). 1040ez forms free download Income from services provided under federal license. 1040ez forms free download   There is a further exclusion from unrelated business taxable income of income from a trade or business conducted by a religious order or by an educational organization maintained by the order. 1040ez forms free download   This exclusion applies only if the following requirements are met. 1040ez forms free download The trade or business must have been operated by the order or by the institution before May 27, 1959. 1040ez forms free download The trade or business must provide services under a license issued by a federal regulatory agency. 1040ez forms free download More than 90% of the net income from the business for the tax year must be devoted to religious, charitable, or educational purposes that constitute the basis for the religious order's exemption. 1040ez forms free download The rates or other charges for these services must be fully competitive with the rates or other charges of similar taxable businesses. 1040ez forms free download Rates or other charges for these services will be considered as fully competitive if they are neither materially higher nor materially lower than the rates charged by similar businesses operating in the same general area. 1040ez forms free download Exception. 1040ez forms free download    This exclusion does not apply to unrelated debt-financed income (discussed under Income From Debt-Financed Property, later). 1040ez forms free download Member income of mutual or cooperative electric companies. 1040ez forms free download   Income of a mutual or cooperative electric company described in section 501(c)(12) which is treated as member income under subparagraph (H) of that section is excluded from unrelated business taxable income. 1040ez forms free download Dues of Agricultural Organizations and Business Leagues Dues received from associate members by organizations exempt under section 501(c)(5) or section 501(c)(6) may be treated as gross income from an unrelated trade or business if the associate member category exists for the principal purpose of producing unrelated business income. 1040ez forms free download For example, if an organization creates an associate member category solely to allow associate members to purchase insurance through the organization, the associate member dues may be unrelated business income. 1040ez forms free download Exception. 1040ez forms free download   Associate member dues received by an agricultural or horticultural organization are not treated as gross income from an unrelated trade or business, regardless of their purpose, if they are not more than the annual limit. 1040ez forms free download The limit on dues paid by an associate member is $148 for 2011. 1040ez forms free download   If the required annual dues are more than the limit, the entire amount is treated as income from an unrelated business unless the associate member category was formed or availed of for the principal purpose of furthering the organization's exempt purposes. 1040ez forms free download Deductions To qualify as allowable deductions in computing unrelated business taxable income, the expenses, depreciation, and similar items generally must be allowable income tax deductions that are directly connected with carrying on an unrelated trade or business. 1040ez forms free download They cannot be directly connected with excluded income. 1040ez forms free download For an exception to the “directly connected” requirement, see Charitable contributions deduction, under Modifications, later. 1040ez forms free download Directly Connected To be directly connected with the conduct of an unrelated business, deductions must have a proximate and primary relationship to carrying on that business. 1040ez forms free download For an exception, see Expenses attributable to exploitation of exempt activities, later. 1040ez forms free download Expenses attributable solely to unrelated business. 1040ez forms free download   Expenses, depreciation, and similar items attributable solely to the conduct of an unrelated business are proximately and primarily related to that business and qualify for deduction to the extent that they are otherwise allowable income tax deductions. 1040ez forms free download   For example, salaries of personnel employed full-time to conduct the unrelated business and depreciation of a building used entirely in the conduct of that business are deductible to the extent otherwise allowable. 1040ez forms free download Expenses attributable to dual use of facilities or personnel. 1040ez forms free download   When facilities or personnel are used both to conduct exempt functions and to conduct an unrelated trade or business, expenses, depreciation, and similar items attributable to the facilities or personnel must be allocated between the two uses on a reasonable basis. 1040ez forms free download The part of an item allocated to the unrelated trade or business is proximately and primarily related to that business and is allowable as a deduction in computing unrelated business taxable income if the expense is otherwise an allowable income tax deduction. 1040ez forms free download Example 1. 1040ez forms free download A school recognized as a tax-exempt organization contracts with an individual to conduct a summer tennis camp. 1040ez forms free download The school provides the tennis courts, housing, and dining facilities. 1040ez forms free download The contracted individual hires the instructors, recruits campers, and provides supervision. 1040ez forms free download The income the school receives from this activity is from a dual use of the facilities and personnel. 1040ez forms free download The school, in computing its unrelated business taxable income, may deduct an allocable part of the expenses attributable to the facilities and personnel. 1040ez forms free download Example 2. 1040ez forms free download An exempt organization with gross income from an unrelated trade or business pays its president $90,000 a year. 1040ez forms free download The president devotes approximately 10% of his time to the unrelated business. 1040ez forms free download To figure the organization's unrelated business taxable income, a deduction of $9,000 ($90,000 × 10%) is allowed for the salary paid to its president. 1040ez forms free download Expenses attributable to exploitation of exempt activities. 1040ez forms free download   Generally, expenses, depreciation, and similar items attributable to the conduct of an exempt activity are not deductible in computing unrelated business taxable income from an unrelated trade or business that exploits the exempt activity. 1040ez forms free download (See Exploitation of exempt functions under Not substantially related in chapter 3. 1040ez forms free download ) This is because they do not have a proximate and primary relationship to the unrelated trade or business, and therefore, they do not qualify as directly connected with that business. 1040ez forms free download Exception. 1040ez forms free download   Expenses, depreciation, and similar items may be treated as directly connected with the conduct of the unrelated business if all the following statements are true. 1040ez forms free download The unrelated business exploits the exempt activity. 1040ez forms free download The unrelated business is a type normally conducted for profit by taxable organizations. 1040ez forms free download The exempt activity is a type normally conducted by taxable organizations in carrying on that type of business. 1040ez forms free download The amount treated as directly connected is the smaller of: The excess of these expenses, depreciation, and similar items over the income from, or attributable to, the exempt activity; or The gross unrelated business income reduced by all other expenses, depreciation, and other items that are actually directly connected. 1040ez forms free download   The application of these rules to an advertising activity that exploits an exempt publishing activity is explained next. 1040ez forms free download Exploitation of Exempt Activity—Advertising Sales The sale of advertising in a periodical of an exempt organization that contains editorial material related to the accomplishment of the organization's exempt purpose is an unrelated business that exploits an exempt activity, the circulation and readership of the periodical. 1040ez forms free download Therefore, in addition to direct advertising costs, exempt activity costs (expenses, depreciation, and similar expenses attributable to the production and distribution of the editorial or readership content) can be treated as directly connected with the conduct of the advertising activity. 1040ez forms free download (See Expenses attributable to exploitation of exempt activities under Directly Connected, earlier. 1040ez forms free download ) Figuring unrelated business taxable income (UBTI). 1040ez forms free download   The UBTI of an advertising activity is the amount shown in the following chart. 1040ez forms free download IF gross advertising income is . 1040ez forms free download . 1040ez forms free download . 1040ez forms free download THEN UBTI is . 1040ez forms free download . 1040ez forms free download . 1040ez forms free download More than direct advertising costs The excess advertising income, reduced (but not below zero) by the excess, if any, of readership costs over circulation income. 1040ez forms free download Equal to or less than direct advertising costs Zero. 1040ez forms free download   • Circulation income and readership costs are not taken into account. 1040ez forms free download   • Any excess advertising costs reduce (but not below zero) UBTI from any other unrelated business activity. 1040ez forms free download   The terms used in the chart are explained in the following discussions. 1040ez forms free download Periodical Income Gross advertising income. 1040ez forms free download   This is all the income from the unrelated advertising activities of an exempt organization periodical. 1040ez forms free download Circulation income. 1040ez forms free download   This is all the income from the production, distribution, or circulation of an exempt organization's periodical (other than gross advertising income). 1040ez forms free download It includes all amounts from the sale or distribution of the readership content of the periodical, such as income from subscriptions. 1040ez forms free download It also includes allocable membership receipts if the right to receive the periodical is associated with a membership or similar status in the organization. 1040ez forms free download Allocable membership receipts. 1040ez forms free download   This is the part of membership receipts (dues, fees, or other charges associated with membership) equal to the amount that would have been charged and paid for the periodical if: The periodical was published by a taxable organization, The periodical was published for profit, and The member was an unrelated party dealing with the taxable organization at arm's length. 1040ez forms free download   The amount used to allocate membership receipts is the amount shown in the following chart. 1040ez forms free download   For this purpose, the total periodical costs are the sum of the direct advertising costs and the readership costs, explained under Periodical Costs, later. 1040ez forms free download The cost of other exempt activities means the total expenses incurred by the organization in connection with its other exempt activities, not offset by any income earned by the organization from those activities. 1040ez forms free download IF . 1040ez forms free download . 1040ez forms free download . 1040ez forms free download THEN the amount used to allocate membership receipts is . 1040ez forms free download . 1040ez forms free download . 1040ez forms free download 20% or more of the total circulation consists of sales to nonmembers The subscription price charged nonmembers. 1040ez forms free download The above condition does not apply, and 20% or more of the members pay reduced dues because they do not receive the periodical The reduction in dues for a member not receiving the periodical. 1040ez forms free download Neither of the above conditions applies The membership receipts multiplied by this fraction:   Total periodical costs Total periodical costs Plus Cost of other exempt activities Example 1. 1040ez forms free download U is an exempt scientific organization with 10,000 members who pay annual dues of $15. 1040ez forms free download One of U's activities is publishing a monthly periodical distributed to all of its members. 1040ez forms free download U also distributes 5,000 additional copies of its periodical to nonmembers, who subscribe for $10 a year. 1040ez forms free download Since the nonmember circulation of U's periodical represents one-third (more than 20%) of its total circulation, the subscription price charged to nonmembers is used to determine the part of U's membership receipts allocable to the periodical. 1040ez forms free download Thus, U's allocable membership receipts are $100,000 ($10 times 10,000 members), and U's total circulation income for the periodical is $150,000 ($100,000 from members plus $50,000 from sales to nonmembers). 1040ez forms free download Example 2. 1040ez forms free download Assume the same facts except that U sells only 500 copies of its periodical to nonmembers, at a price of $10 a year. 1040ez forms free download Assume also that U's members may elect not to receive the periodical, in which case their dues are reduced from $15 a year to $6 a year, and that only 3,000 members elect to receive the periodical and pay the full dues of $15 a year. 1040ez forms free download U's stated subscription price of $9 to members consistently results in an excess of total income (including gross advertising income) attributable to the periodical over total costs of the periodical. 1040ez forms free download Since the 500 copies of the periodical distributed to nonmembers represent only 14% of the 3,500 copies distributed, the $10 subscription price charged to nonmembers is not used to determine the part of membership receipts allocable to the periodical. 1040ez forms free download Instead, since 70% of the members elect not to receive the periodical and pay $9 less per year in dues, the $9 price is used to determine the subscription price charged to members. 1040ez forms free download Thus, the allocable membership receipts will be $9 a member, or $27,000 ($9 times 3,000 copies). 1040ez forms free download U's total circulation income is $32,000 ($27,000 plus the $5,000 from nonmember subscriptions). 1040ez forms free download Periodical Costs Direct advertising costs. 1040ez forms free download   These are expenses, depreciation, and similar items of deduction directly connected with selling and publishing advertising in the periodical. 1040ez forms free download   Examples of allowable deductions under this classification include agency commissions and other direct selling costs, such as transportation and travel expenses, office salaries, promotion and research expenses, and office overhead directly connected with the sale of advertising lineage in the periodical. 1040ez forms free download Also included are other deductions commonly classified as advertising costs under standard account classifications, such as artwork and copy preparation, telephone, telegraph, postage, and similar costs directly connected with advertising. 1040ez forms free download   In addition, direct advertising costs include the part of mechanical and distribution costs attributable to advertising lineage. 1040ez forms free download For this purpose, the general account classifications of items includable in mechanical and distribution costs ordinarily employed in business-paper and consumer-publication accounting provide a guide for the computation. 1040ez forms free download Accordingly, the mechanical and distribution costs include the part of the costs and other expenses of composition, press work, binding, mailing (including paper and wrappers used for mailing), and bulk postage attributable to the advertising lineage of the publication. 1040ez forms free download   In the absence of specific and detailed records, the part of mechanical and distribution costs attributable to the periodical's advertising lineage can be based on the ratio of advertising lineage to total lineage in the periodical, if this allocation is reasonable. 1040ez forms free download Readership costs. 1040ez forms free download   These are all expenses, depreciation, and similar items that are directly connected with the production and distribution of the readership content of the periodical. 1040ez forms free download Costs partly attributable to other activities. 1040ez forms free download   Deductions properly attributable to exempt activities other than publishing the periodical may not be allocated to the periodical. 1040ez forms free download When expenses are attributable both to the periodical and to the organization's other activities, an allocation must be made on a reasonable basis. 1040ez forms free download The method of allocation will vary with the nature of the item, but once adopted, should be used consistently. 1040ez forms free download Allocations based on dollar receipts from various exempt activities generally are not reasonable since receipts usually do not accurately reflect the costs associated with specific activities that an exempt organization conducts. 1040ez forms free download Consolidated Periodicals If an exempt organization publishes more than one periodical to produce income, it may treat all of them (but not less than all) as one in determining unrelated business taxable income from selling advertising. 1040ez forms free download It treats the gross income from all the periodicals, and the deductions directly connected with them, on a consolidated basis. 1040ez forms free download Consolidated treatment, once adopted, must be followed consistently and is binding. 1040ez forms free download This treatment can be changed only with the consent of the Internal Revenue Service. 1040ez forms free download An exempt organization's periodical is published to produce income if: The periodical generates gross advertising income to the organization equal to at least 25% of its readership costs, and Publishing the periodical is an activity engaged in for profit. 1040ez forms free download Whether the publication of a periodical is an activity engaged in for profit can be determined only by all the facts and circumstances in each case. 1040ez forms free download The facts and circumstances must show that the organization carries on the activity for economic profit, although there may not be a profit in a particular year. 1040ez forms free download For example, if an organization begins publishing a new periodical whose total costs exceed total income in the start-up years because of lack of advertising sales, that does not mean that the organization did not have as its objective an economic profit. 1040ez forms free download The organization may establish that it had this objective by showing it can reasonably expect advertising sales to increase, so that total income will exceed costs within a reasonable time. 1040ez forms free download Example. 1040ez forms free download Y, an exempt trade association, publishes three periodicals that it distributes to its members: a weekly newsletter, a monthly magazine, and a quarterly journal. 1040ez forms free download Both the monthly magazine and the quarterly journal contain advertising that accounts for gross advertising income equal to more than 25% of their respective readership costs. 1040ez forms free download Similarly, the total income attributable to each periodical has exceeded the total deductions attributable to each periodical for substantially all the years they have been published. 1040ez forms free download The newsletter carries no advertising and its annual subscription price is not intended to cover the cost of publication. 1040ez forms free download The newsletter is a service that Y distributes to all of its members in an effort to keep them informed of changes occurring in the business world. 1040ez forms free download It is not engaged in for profit. 1040ez forms free download Under these circumstances, Y may consolidate the income and deductions from the monthly and quarterly journals in computing its unrelated business taxable income. 1040ez forms free download It may not consolidate the income and deductions from the newsletter with the income and deductions of its other periodicals, since the newsletter is not published for the production of income. 1040ez forms free download Modifications Net operating loss deduction. 1040ez forms free download   The net operating loss (NOL) deduction (as provided in section 172) is allowed in computing unrelated business taxable income. 1040ez forms free download However, the NOL for any tax year, the carrybacks and carryovers of NOLs, and the NOL deduction are determined without taking into account any amount of income or deduction that has been specifically excluded in computing unrelated business taxable income. 1040ez forms free download For example, a loss from an unrelated trade or business is not diminished because dividend income was received. 1040ez forms free download   If this were not done, organizations would, in effect, be taxed on their exempt income, since unrelated business losses then would be offset by dividends, interest, and other excluded income. 1040ez forms free download This would reduce the loss that could be applied against unrelated business income of prior or future tax years. 1040ez forms free download Therefore, to preserve the immunity of exempt income, all NOL computations are limited to those items of income and deductions that affect the unrelated business taxable income. 1040ez forms free download   In line with this concept, an NOL carryback or carryover is allowed only from a tax year for which the organization is subject to tax on unrelated business income. 1040ez forms free download   For example, if an organization just became subject to the tax last year, its NOL for that year is not a carryback to a prior year when it had no unrelated business taxable income, nor is its NOL carryover to succeeding years reduced by the related income of those prior years. 1040ez forms free download   However, in determining the span of years for which an NOL may be carried back or forward, the tax years for which the organization is not subject to the tax on unrelated business income are counted. 1040ez forms free download For example, if an organization was subject to the tax for 2009 and had an NOL for that year, the last tax year to which any part of that loss may be carried over is 2029, regardless of whether the organization was subject to the unrelated business income tax in any of the intervening years. 1040ez forms free download   For more details on the NOL deduction, including property eligible for an extended carryback period, see sections 172 and 1400N, Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts, and Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 1040ez forms free download Charitable contributions deduction. 1040ez forms free download   An exempt organization is allowed to deduct its charitable contributions in computing its unrelated business taxable income whether or not the contributions are directly connected with the unrelated business. 1040ez forms free download   To be deductible, the contribution must be paid to another qualified organization. 1040ez forms free download For example, an exempt university that operates an unrelated business may deduct a contribution made to another university for educational work, but may not claim a deduction for contributions of amounts spent for carrying out its own educational program. 1040ez forms free download   For purposes of the deduction, a distribution by a trust made under the trust instrument to a beneficiary, which itself is a qualified organization, is treated the same as a contribution. 1040ez forms free download Deduction limits. 1040ez forms free download   An exempt organization that is subject to the unrelated business income tax at corporate rates is allowed a deduction for charitable contributions up to 10% of its unrelated business taxable income computed without regard to the deduction for contributions. 1040ez forms free download See the Instructions for Form 990-T for more information. 1040ez forms free download    An exempt trust that is subject to the unrelated business income tax at trust rates generally is allowed a deduction for charitable contributions in the same amounts as allowed for individuals. 1040ez forms free download However, the limit on the deduction is determined in relation to the trust's unrelated business taxable income computed without regard to the deduction, rather than in relation to adjusted gross income. 1040ez forms free download   Contributions in excess of the limits just described may be carried over to the next 5 tax years. 1040ez forms free download A contribution carryover is not allowed, however, to the extent that it increases an NOL carryover. 1040ez forms free download Suspension of deduction limits for farmers and ranchers. 1040ez forms free download   The limitations discussed above are temporarily suspended for certain qualified conservation contributions of property used in agriculture or livestock production. 1040ez forms free download See the Instructions for Form 990-T for details. 1040ez forms free download Specific deduction. 1040ez forms free download   In computing unrelated business taxable income, a specific deduction of $1,000 is allowed. 1040ez forms free download However, the specific deduction is not allowed in computing an NOL or the NOL deduction. 1040ez forms free download   Generally, the deduction is limited to $1,000 regardless of the number of unrelated businesses in which the organization is engaged. 1040ez forms free download Exception. 1040ez forms free download   An exception is provided in the case of a diocese, province of a religious order, or a convention or association of churches that may claim a specific deduction for each parish, individual church, district, or other local unit. 1040ez forms free download In these cases, the specific deduction for each local unit is limited to the lower of: $1,000, or Gross income derived from an unrelated trade or business regularly conducted by the local unit. 1040ez forms free download   This exception applies only to parishes, districts, or other local units that are not separate legal entities, but are components of a larger entity (diocese, province, convention, or association) filing Form 990-T. 1040ez forms free download The parent organization must file a return reporting the unrelated business gross income and related deductions of all units that are not separate legal entities. 1040ez forms free download The local units cannot file separate returns. 1040ez forms free download However, each local unit that is separately incorporated must file its own return and cannot include, or be included with, any other entity. 1040ez forms free download See Title-holding corporations in chapter 1 for a discussion of the only situation in which more than one legal entity may be included on the same Form 990-T. 1040ez forms free download Example. 1040ez forms free download X is an association of churches and is divided into local units A, B, C, and D. 1040ez forms free download Last year, A, B, C, and D derived gross income of, respectively, $1,200, $800, $1,500, and $700 from unrelated businesses that they regularly conduct. 1040ez forms free download X may claim a specific deduction of $1,000 with respect to A, $800 with respect to B, $1,000 with respect to C, and $700 with respect to D. 1040ez forms free download Partnership Income or Loss An organization may have unrelated business income or loss as a member of a partnership, rather than through direct business dealings with the public. 1040ez forms free download If so, it must treat its share of the partnership income or loss as if it had conducted the business activity in its own capacity as a corporation or trust. 1040ez forms free download No distinction is made between limited and general partners. 1040ez forms free download The organization is required to notify the partnership of its tax-exempt status. 1040ez forms free download Thus, if an organization is a member of a partnership regularly engaged in a trade or business that is an unrelated trade or business with respect to the organization, the organization must include in its unrelated business taxable income its share of the partnership's gross income from the unrelated trade or business (whether or not distributed), and the deductions attributable to it. 1040ez forms free download The partnership income and deductions to be included in the organization's unrelated business taxable income are figured the same way as any income and deductions from an unrelated trade or business conducted directly by the organization. 1040ez forms free download The partnership is required to provide the organization this information on Schedule K-1. 1040ez forms free download Example. 1040ez forms free download An exempt educational organization is a partner in a partnership that operates a factory. 1040ez forms free download The partnership also holds stock in a corporation. 1040ez forms free download The exempt organization must include its share of the gross income from operating the factory in its unrelated business taxable income but may exclude its share of any dividends the partnership received from the corporation. 1040ez forms free download Different tax years. 1040ez forms free download   If the exempt organization and the partnership of which it is a member have different tax years, the partnership items that enter into the computation of the organization's unrelated business taxable income must be based on the income and deductions of the partnership for the partnership's tax year that ends within or with the organization's tax year. 1040ez forms free download S Corporation Income or Loss An organization that owns S corporation stock must take into account its share of the S corporation's income, deductions, or losses in figuring unrelated business taxable income, regardless of the actual source or nature of the income, deductions, and losses. 1040ez forms free download For example, the organization's share of the S corporation's interest and dividend income will be taxable, even though interest and dividends are normally excluded from unrelated business taxable income. 1040ez forms free download The organization must also take into account its gain or loss on the sale or other disposition of the S corporation stock in figuring unrelated business taxable income. 1040ez forms free download Special Rules for Foreign Organizations The unrelated business taxable income of a foreign organization exempt from tax under section 501(a) consists of the organization's: Unrelated business taxable income derived from sources within the United States but not effectively connected with the conduct of a trade or business within the United States, and Unrelated business taxable income effectively connected with the conduct of a trade or business within the United States, whether or not this income is derived from sources within the United States. 1040ez forms free download To determine whether income realized by a foreign organization is derived from sources within the United States or is effectively connected with the conduct of a trade or business within the United States, see sections 861 through 865 and the related regulations. 1040ez forms free download Special Rules for Social Clubs, VEBAs, SUBs, and GLSOs The following discussion applies to: Social clubs described in section 501(c)(7), Voluntary employees' beneficiary associations (VEBAs) described in section 501(c)(9), Supplemental unemployment compensation benefit trusts (SUBs) described in section 501(c)(17), and Group legal services organizations (GLSOs) described in section 501(c)(20). 1040ez forms free download These organizations must figure unrelated business taxable income under special rules. 1040ez forms free download Unlike other exempt organizations, they cannot exclude their investment income (dividends, interest, rents, etc. 1040ez forms free download ). 1040ez forms free download (See Exclusions under Income, earlier. 1040ez forms free download ) Therefore, they are generally subject to unrelated business income tax on this income. 1040ez forms free download The unrelated business taxable income of these organizations includes all gross income, less deductions directly connected with the production of that income, except that gross income for this purpose does not include exempt function income. 1040ez forms free download The dividends received by a corporation are not allowed in computing unrelated business taxable income because it is not an expense incurred in the production of income. 1040ez forms free download Losses from nonexempt activities. 1040ez forms free download   Losses from nonexempt activities of these organizations cannot be used to offset investment income unless the activities were undertaken with the intent to make a profit. 1040ez forms free download Example. 1040ez forms free download A private golf and country club that is a qualified tax-exempt social club has nonexempt function income from interest and from the sale of food and beverages to nonmembers. 1040ez forms free download The club sells food and beverages as a service to members and their guests rather than for the purpose of making a profit. 1040ez forms free download Therefore, any loss resulting from sales to nonmembers cannot be used to offset the club's interest income. 1040ez forms free download Modifications. 1040ez forms free download   The unrelated business taxable income is modified by any NOL or charitable contributions deduction and by the specific deduction (described earlier under Deductions). 1040ez forms free download Exempt function income. 1040ez forms free download   This is gross income from dues, fees, charges or similar items paid by members for goods, facilities, or services to the members or their dependents or guests, to further the organization's exempt purposes. 1040ez forms free download Exempt function income also includes income set aside for qualified purposes. 1040ez forms free download Income that is set aside. 1040ez forms free download   This is income set aside to be used for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals. 1040ez forms free download In addition, for a VEBA, SUB, or GLSO, it is income set aside to provide for the payment of life, sick, accident, or other benefits. 1040ez forms free download   However, any amounts set aside by a VEBA or SUB that exceed the organization's qualified asset account limit (determined under section 419A) are unrelated business income. 1040ez forms free download Special rules apply to the treatment of existing reserves for post-retirement medical or life insurance benefits. 1040ez forms free download These rules are explained in section 512(a)(3)(E)(ii). 1040ez forms free download   Income derived from an unrelated trade or business may not be set aside and therefore cannot be exempt function income. 1040ez forms free download In addition, any income set aside and later spent for other purposes must be included in unrelated business taxable income. 1040ez forms free download   Set-aside income is generally excluded from gross income only if it is set aside in the tax year in which it is otherwise includible in gross income. 1040ez forms free download However, income set aside on or before the date for filing Form 990-T, including extensions of time, may, at the election of the organization, be treated as having been set aside in the tax year for which the return was filed. 1040ez forms free download The income set aside must have been includible in gross income for that earlier year. 1040ez forms free download Nonrecognition of gain. 1040ez forms free download   If the organization sells property used directly in performing an exempt function and purchases other property used directly in performing an exempt function, any gain on the sale is recognized only to the extent that the sales price of the old property exceeds the cost of the new property. 1040ez forms free download The purchase of the new property must be made within 1 year before the date of sale of the old property or within 3 years after the date of sale. 1040ez forms free download   This rule also applies to gain from an involuntary conversion of the property resulting from its destruction in whole or in part, theft, seizure, requisition, or condemnation. 1040ez forms free download Special Rules for Veterans' Organizations Unrelated business taxable income of a veterans' organization that is exempt under section 501(c)(19) does not include the net income from insurance business that is properly set aside. 1040ez forms free download The organization may set aside income from payments received for life, sick, accident, or health insurance for the organization's members or their dependents for the payment of insurance benefits or reasonable costs of insurance administration, or for use exclusively for religious, charitable, scientific, literary, or educational purposes, or the prevention of cruelty to children or animals. 1040ez forms free download For details, see section 512(a)(4) and the regulations under that section. 1040ez forms free download Income From Controlled Organizations The exclusions for interest, annuities, royalties, and rents, explained earlier in this chapter under Income, may not apply to a payment of these items received by a controlling organization from its controlled organization. 1040ez forms free download The payment is included in the controlling organization's unrelated business taxable income to the extent it reduced the net unrelated income (or increased the net unrelated loss) of the controlled organization. 1040ez forms free download All deductions of the controlling organization directly connected with the amount included in its unrelated business taxable income are allowed. 1040ez forms free download Excess qualifying specified payments. 1040ez forms free download   Excess qualifying specified payments received or accrued from a controlled entity are included in a controlling exempt organization's unrelated business taxable income only on the amount that exceeds that which would have been paid or accrued if the payments had been determined under section 482. 1040ez forms free download Qualifying specified payments means any payments of interest, annuities, royalties, or rents received or accrued from the controlled organization pursuant to a binding written contract in effect on August 17, 2006, or to a contract which is a renewal, under substantially similar terms of a binding written contract in effect on August 17, 2006, and the payments are received or accrued before January 1, 2012. 1040ez forms free download   If a controlled participant is not required to file a U. 1040ez forms free download S. 1040ez forms free download income tax return, the participant must ensure that the copy or copies of the Regulations section 1. 1040ez forms free download 482-7 Cost Sharing Arrangement Statement and any updates are attached to Schedule M of any Form 5471, Information Return of U. 1040ez forms free download S. 1040ez forms free download Persons With Respect To Certain Foreign Corporations, any Form 5472, Information Return of a 25% Foreign-Owned U. 1040ez forms free download S. 1040ez forms free download Corporation or a Foreign Corporation Engaged in a U. 1040ez forms free download S. 1040ez forms free download Trade or Business, or any Form 8865, Return of U. 1040ez forms free download S. 1040ez forms free download Persons With Respect to Certain Foreign Partnerships, filed for that participant. 1040ez forms free download Addition to tax for valuation misstatements. 1040ez forms free download   Under section 512(b)(13)(E)(ii), the tax imposed on a controlling organization will be increased by 20 percent of the excess qualifying specified payments that are determined with or without any amendments or supplements, whichever is larger. 1040ez forms free download See section 512(b)(13)(E)(ii) for more information. 1040ez forms free download Net unrelated income. 1040ez forms free download   This is: For an exempt organization, its unrelated business taxable income, or For a nonexempt organization, the part of its taxable income that would be unrelated business taxable income if it were exempt and had the same exempt purposes as the controlling organization. 1040ez forms free download Net unrelated loss. 1040ez forms free download   This is: For an exempt organization, its NOL, or For a nonexempt organization, the part of its NOL that would be its NOL if it were exempt and had the same exempt purposes as the controlling organization. 1040ez forms free download Control. 1040ez forms free download   An organization is controlled if: For a corporation, the controlling organization owns (by vote or value) more than 50% of the stock, For a partnership, the controlling organization owns more than 50% of the profits or capital interests, or For any other organization, the controlling organization owns more than 50% of the beneficial interest. 1040ez forms free download For this purpose, constructive ownership of stock (determined under section 318) or other interests is taken into account. 1040ez forms free download   As a result, an exempt parent organization is treated as controlling any subsidiary in which it holds more than 50% of the voting power or value, whether directly (as in the case of a first-tier subsidiary) or indirectly (as in the case of a second-tier subsidiary). 1040ez forms free download Income from property financed with qualified 501(c)(3) bonds. 1040ez forms free download If any part of a 501(c)(3) organization's property financed with qualified 501(c)(3) bonds is used in a trade or business of any person other than a section 501(c)(3) organization or a governmental unit, and such use is not consistent with the requirements for qualified 501(c)(3) bonds under section 145, the section 501(c)(3) organization is considered to have received unrelated business income in the amount of the greater of the actual rental income or the fair rental value of the property for the period it is used. 1040ez forms free download No deduction is allowed for interest on the private activity bond. 1040ez forms free download See sections 150(b)(3) and (c) for more information. 1040ez forms free download Disposition of property received from taxable subsidiary and used in unrelated business. 1040ez forms free download A taxable 80%-owned subsidiary corporation of one or more tax-exempt entities is generally subject to tax on a distribution in liquidation of its assets to its exempt parent (or parents). 1040ez forms free download The assets are treated as if sold at fair market value. 1040ez forms free download Tax-exempt entities include organizations described in sections 501(a), 529, and 115, charitable remainder trusts, U. 1040ez forms free download S. 1040ez forms free download and foreign governments, Indian tribal governments, international organizations, and similar non-taxable organizations. 1040ez forms free download A taxable corporation that transfers substantially all of its assets to a tax-exempt entity in a transaction that otherwise qualifies for nonrecognition treatment must recognize gain on the transaction as if it sold the assets at fair market value. 1040ez forms free download However, such a transfer is not taxable if it qualifies as a like-kind exchange under section 1031 or an involuntary conversion under section 1033. 1040ez forms free download In such a case the built-in appreciation is preserved in the replacement property received in the transaction. 1040ez forms free download A corporation that changes status from taxable to tax-exempt is treated generally as if it transferred all of its assets to a tax-exempt entity immediately before the change in status (thus subjecting it to the tax on a deemed sale for fair market value). 1040ez forms free download This rule does not apply where the taxable corporation becomes exempt within 3 years of formation, or had previously been exempt and within several years (generally a period of 3 years) regains exemption, unless the principal purpose of the transactions is to avoid the tax on the change in status. 1040ez forms free download In the transactions described above, the taxable event is deferred for property that the tax-exempt entity immediately uses in an unrelated business. 1040ez forms free download If the parent later disposes of the property, then any gain (not in excess of the amount not recognized) is included in the parent's unrelated business taxable income. 1040ez forms free download If there is partial use of the assets in unrelated business, then there is partial recognition of gain or loss. 1040ez forms free download Property is treated as disposed if the tax-exempt entity no longer uses it in an unrelated business. 1040ez forms free download Losses on the transfer of assets to a tax-exempt entity are disallowed if part of a plan with a principal purpose of recognizing losses. 1040ez forms free download Income From Debt-Financed Property Investment income that would otherwise be excluded from an exempt organization's unrelated business taxable income (see Exclusions under Income earlier) must be included to the extent it is derived from debt-financed property. 1040ez forms free download The amount of income included is proportionate to the debt on the property. 1040ez forms free download Debt-Financed Property In general, the term “debt-financed property” means any property held to produce income (including gain from its disposition) for which there is an acquisition indebtedness at any time during the tax year (or during the 12-month period before the date of the property's disposal, if it was disposed of during the tax year). 1040ez forms free download It includes rental real estate, tangible personal property, and corporate stock. 1040ez forms free download Acquisition Indebtedness For any debt-financed property, acquisition indebtedness is the unpaid amount of debt incurred by an organization: When acquiring or improving the property, Before acquiring or improving the property if the debt would not have been incurred except for the acquisition or improvement, and After acquiring or improving the property if: The debt would not have been incurred except for the acquisition or improvement, and Incurring the debt was reasonably foreseeable when the property was acquired or improved. 1040ez forms free download The facts and circumstances of each situation determine whether incurring a debt was reasonably foreseeable. 1040ez forms free download That an organization may not have foreseen the need to incur a debt before acquiring or improving the property does not necessarily mean that incurring the debt later was not reasonably foreseeable. 1040ez forms free download Example 1. 1040ez forms free download Y, an exempt scientific organization, mortgages its laboratory to replace working capital used in remodeling an office building that Y rents to an insurance company for nonexempt purposes. 1040ez forms free download The debt is acquisition indebtedness since the debt, though incurred after the improvement of the office building, would not have been incurred without the improvement, and the debt was reasonably foreseeable when, to make the improvement, Y reduced its working capital below the amount necessary to continue current operations. 1040ez forms free download Example 2. 1040ez forms free download X, an exempt organization, forms a partnership with A and B. 1040ez forms free download The partnership agreement provides that all three partners will share equally in the profits of the partnership, each will invest $3 million, and X will be a limited partner. 1040ez forms free download X invests $1 million of its own funds in the partnership and $2 million of borrowed funds. 1040ez forms free download The partnership buys as its sole asset an office building that it leases to the public for nonexempt purposes. 1040ez forms free download The office building costs the partnership $24 million, of which $15 million is borrowed from Y bank. 1040ez forms free download The loan is secured by a mortgage on the entire office building. 1040ez forms free download By agreement with Y bank, X is not personally liable for payment of the mortgage. 1040ez forms free download X has acquisition indebtedness of $7 million. 1040ez forms free download This amount is the $2 million debt X incurred in acquiring the partnership interest, plus the $5 million that is X's allocable part of the partnership's debt incurred to buy the office building (one-third of $15 million). 1040ez forms free download Example 3. 1040ez forms free download A labor union advanced funds, from existing resources and without any borrowing, to its tax-exempt subsidiary title-holding company. 1040ez forms free download The subsidiary used the funds to pay a debt owed to a third party that was previously incurred in acquiring two income-producing office buildings. 1040ez forms free download Neither the union nor the subsidiary has incurred any further debt in acquiring or improving the property. 1040ez forms free download The union has no outstanding debt on the property. 1040ez forms free download The subsidiary's debt to the union is represented by a demand note on which the subsidiary makes payments whenever it has the available cash. 1040ez forms free download The books of the union and the subsidiary list the outstanding debt as interorganizational indebtedness. 1040ez forms free download Although the subsidiary's books show a debt to the union, it is not the type subject to the debt-financed property rules. 1040ez forms free download In this situation, the very nature of the title-holding company and the parent-subsidiary relationship shows this debt to be merely a matter of accounting between the two organizations. 1040ez forms free download Accordingly, the debt is not acquisition indebtedness. 1040ez forms free download Change in use of property. 1040ez forms free download   If an organization converts property that is not debt-financed property to a use that results in its treatment as debt-financed property, the outstanding principal debt on the property is thereafter treated as acquisition indebtedness. 1040ez forms free download Example. 1040ez forms free download Four years ago a university borrowed funds to acquire an apartment building as housing for married students. 1040ez forms free download Last year, the university rented the apartment building to the public for nonexempt purposes. 1040ez forms free download The outstanding principal debt becomes acquisition indebtedness as of the time the building was first rented to the public. 1040ez forms free download Continued debt. 1040ez forms free download   If an organization sells property and, without paying off debt that would be acquisition indebtedness if the property were debt-financed property, buys property that is otherwise debt-financed property, the unpaid debt is acquisition indebtedness for the new property. 1040ez forms free download This is true even if the original property was not debt-financed property. 1040ez forms free download Example. 1040ez forms free download To house its administration offices, an exempt organization bought a building using $600,000 of its own funds and $400,000 of borrowed funds secured by a pledge of its securities. 1040ez forms free download The office building was not debt-financed property. 1040ez forms free download The organization later sold the building for $1 million without repaying the $400,000 loan. 1040ez forms free download It used the sale proceeds to buy an apartment building it rents to the general public. 1040ez forms free download The unpaid debt of $400,000 is acquisition indebtedness with respect to the apartment building. 1040ez forms free download Property acquired subject to mortgage or lien. 1040ez forms free download   If property (other than certain gifts, bequests, and devises) is acquired subject to a mortgage, the outstanding principal debt secured by that mortgage is treated as acquisition indebtedness even if the organization did not assume or agree to pay the debt. 1040ez forms free download Example. 1040ez forms free download An exempt organization paid $50,000 for real property valued at $150,000 and subject to a $100,000 mortgage. 1040ez forms free download The $100,000 of outstanding principal debt is acquisition indebtedness, as though the organization had borrowed $100,000 to buy the property. 1040ez forms free download Liens similar to a mortgage. 1040ez forms free download   In determining acquisition indebtedness, a lien similar to a mortgage is treated as a mortgage. 1040ez forms free download A lien is similar to a mortgage if title to property is encumbered by the lien for a creditor's benefit. 1040ez forms free download However, when state law provides that a lien for taxes or assessments attaches to property before the taxes or assessments become due and payable, the lien is not treated as a mortgage until after the taxes or assessments have become due and payable and the organization has had an opportunity to pay the lien in accordance with state law. 1040ez forms free download Liens similar to mortgages include (but are not limited to): Deeds of trust, Conditional sales contracts, Chattel mortgages, Security interests under the Uniform Commercial Code, Pledges, Agreements to hold title in escrow, and Liens for taxes or assessments (other than those discussed earlier in this paragraph). 1040ez forms free download Exception for property acquired by gift, bequest, or devise. 1040ez forms free download   If property subject to a mortgage is acquired by gift, bequest, or devise, the outstanding principal debt secured by the mortgage is not treated as acquisition indebtedness during the 10-year period following the date the organization receives the property. 1040ez forms free download However, this applies to a gift of property only if:    The mortgage was placed on the property more than 5 years before the date the organization received it, and The donor held the property for more than 5 years before the date the organization received it. 1040ez forms free download   This exception does not apply if an organization assumes and agrees to pay all or part of the debt secured by the mortgage or makes any payment for the equity in the property owned by the donor or decedent (other than a payment under an annuity obligation excluded from the definition of acquisition indebtedness, discussed under Debt That Is Not Acquisition Indebtedness, later). 1040ez forms free download   Whether an organization has assumed and agreed to pay all or part of a debt in order to acquire the property is determined by the facts and circumstances of each situation. 1040ez forms free download Modifying existing debt. 1040ez forms free download   Extending, renewing, or refinancing an existing debt is considered a continuation of that debt to the extent its outstanding principal does not increase. 1040ez forms free download When the principal of the modified debt is more than the outstanding principal of the old debt, the excess is treated as a separate debt. 1040ez forms free download Extension or renewal. 1040ez forms free download   In general, any modification or substitution of the terms of a debt by an organization is considered an extension or renewal of the original debt, rather than the start of a new one, to the extent that the outstanding principal of the debt does not increase. 1040ez forms free download   The following are examples of acts resulting in the extension or renewal of a debt: Substituting liens to secure the debt, Substituting obligees whether or not with the organization's consent, Renewing, extending, or accelerating the payment terms of the debt, and Adding, deleting, or substituting sureties or other primary or secondary obligors. 1040ez forms free download Debt increase. 1040ez forms free download   If the outstanding principal of a modified debt is more than that of the unmodified debt, and only part of the refinanced debt is acquisition indebtedness, the payments on the refinanced debt must be allocated between the old debt and the excess. 1040ez forms free download Example. 1040ez forms free download An organization has an outstanding principal debt of $500,000 that is treated as acquisition indebtedness. 1040ez forms free download The organization borrows another $100,000, which is not acquisition indebtedness, from the same lender, resulting in a $600,000 note for the total obligation. 1040ez forms free download A payment of $60,000 on the total obligation would reduce the acquisition indebtedness by $50,000 ($60,000 x $500,000/$600,000) and the excess debt by $10,000. 1040ez forms free download Debt That Is Not Acquisition Indebtedness Certain debt and obligations are not acquisition indebtedness. 1040ez forms free download These include the following. 1040ez forms free download Debts incurred in performing an exempt purpose. 1040ez forms free download Annuity obligations. 1040ez forms free download Securities loans. 1040ez forms free download Real property debts of qualified organizations. 1040ez forms free download Certain Federal financing. 1040ez forms free download Debt incurred in performing exempt purpose. 1040ez forms free download   A debt incurred in performing an exempt purpose is not acquisition indebtedness. 1040ez forms free download For example, acquisition indebtedness does not include the debt an exempt credit union incurs in accepting deposits from its members or the debt an exempt organization incurs in accepting payments from its members to provide them with insurance, retirement, or other benefits. 1040ez forms free download Annuity obligation. 1040ez forms free download   The organization's obligation to pay an annuity is not acquisition indebtedness if the annuity meets all the following requirements. 1040ez forms free download It must be the sole consideration (other than a mortgage on property acquired by gift, bequest, or devise that meets the exception discussed under Property acquired subject to mortgage or lien, earlier in this chapter) issued in exchange for the property received. 1040ez forms free download Its present value, at the time of exchange, must be less than 90% of the value of the prior owner's equity in the property received. 1040ez forms free download It must be payable over the lives of either one or two individuals living when issued. 1040ez forms free download It must be payable under a contract that: Does not guarantee a minimum nor specify a maximum number of payments, and Does not provide for any adjustment of the amount of the annuity payments based on the income received from the transferred property or any other property. 1040ez forms free download Example. 1040ez forms free download X, an exempt organization, receives property valued at $100,000 from donor A, a male age 60. 1040ez forms free download In return X promises to pay A $6,000 a year for the rest of A's life, with neither a minimum nor maximum number of payments specified. 1040ez forms free download The amounts paid under the annuity are not dependent on the income derived from the property transferred to X. 1040ez forms free download The present value of this annuity is $81,156, determined from IRS valuation tables. 1040ez forms free download Since the value of the annuity is less than 90 percent of A's $100,000 equity in the property transferred and the annuity meets all the other requirements just discussed, the obligation to make annuity payments is not acquisition indebtedness. 1040ez forms free download Securities loans. 1040ez forms free download   Acquisition indebtedness does not include an obligation of the exempt organization to return collateral security provided by the borrower of the exempt organization's securities under a securities loan agreement (discussed under Exclusions earlier in this chapter). 1040ez forms free download This transaction is not treated as the borrowing by the exempt organization of the collateral furnished by the borrower (usually a broker) of the securities. 1040ez forms free download   However, if the exempt organization incurred debt to buy the loaned securities, any income from the securities (including income from
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The 1040ez Forms Free Download

1040ez forms free download Publication 523 - Main Content Table of Contents Main HomeVacant land. 1040ez forms free download Factors used to determine main home. 1040ez forms free download Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining BasisCost As Basis Basis Other Than Cost Adjusted Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Nonqualified Use Business Use or Rental of HomeUnrecaptured section 1250 gain. 1040ez forms free download Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. 1040ez forms free download Individual taxpayer identification number (ITIN). 1040ez forms free download More information. 1040ez forms free download Comprehensive Examples Special SituationsException for sales to related persons. 1040ez forms free download Deducting Taxes in the Year of SaleForm 1099-S. 1040ez forms free download More information. 1040ez forms free download Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. 1040ez forms free download Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. 1040ez forms free download ” Usually, the home you live in most of the time is your main home and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. 1040ez forms free download To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. 1040ez forms free download Land. 1040ez forms free download   If you sell the land on which your main home is located, but not the house itself, you cannot exclude any gain you have from the sale of the land. 1040ez forms free download Example. 1040ez forms free download You buy a piece of land and move your main home to it. 1040ez forms free download Then, you sell the land on which your main home was located. 1040ez forms free download This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. 1040ez forms free download Vacant land. 1040ez forms free download   The sale of vacant land is not a sale of your main home unless: The vacant land is adjacent to land containing your home, You owned and used the vacant land as part of your main home, The separate sale of your home satisfies the requirements for exclusion and occurs within 2 years before or 2 years after the date of the sale of the vacant land, and The other requirements for excluding gain from the sale of a main home have been satisfied with respect to the vacant land. 1040ez forms free download If these requirements are met, the sale of the home and the sale of the vacant land are treated as one sale and only one maximum exclusion can be applied to any gain. 1040ez forms free download See Excluding the Gain , later. 1040ez forms free download The destruction of your home is treated as a sale of your home. 1040ez forms free download As a result, you may be able to meet these requirements if you sell vacant land used as a part of your main home within 2 years from the date of the destruction of your main home. 1040ez forms free download For information, see Publication 547. 1040ez forms free download More than one home. 1040ez forms free download   If you have more than one home, you can exclude gain only from the sale of your main home. 1040ez forms free download You must include in income the gain from the sale of any other home. 1040ez forms free download If you have two homes and live in each of them, your main home is ordinarily the one you live in most of the time during the year. 1040ez forms free download Example 1. 1040ez forms free download You own two homes, one in New York and one in Florida. 1040ez forms free download From 2009 through 2013, you live in the New York home for 7 months and in the Florida residence for 5 months of each year. 1040ez forms free download In the absence of facts and circumstances indicating otherwise, the New York home is your main home. 1040ez forms free download You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. 1040ez forms free download Example 2. 1040ez forms free download You own a house, but you live in another house that you rent. 1040ez forms free download The rented house is your main home. 1040ez forms free download Example 3. 1040ez forms free download You own two homes, one in Virginia and one in New Hampshire. 1040ez forms free download In 2009 and 2010, you lived in the Virginia home. 1040ez forms free download In 2011 and 2012, you lived in the New Hampshire home. 1040ez forms free download In 2013, you lived again in the Virginia home. 1040ez forms free download Your main home in 2009, 2010, and 2013 is the Virginia home. 1040ez forms free download Your main home in 2011 and 2012 is the New Hampshire home. 1040ez forms free download You would be eligible to exclude gain from the sale of either home (but not both) in 2013. 1040ez forms free download Factors used to determine main home. 1040ez forms free download   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. 1040ez forms free download Those factors include the following. 1040ez forms free download Your place of employment. 1040ez forms free download The location of your family members' main home. 1040ez forms free download Your mailing address for bills and correspondence. 1040ez forms free download The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. 1040ez forms free download The location of the banks you use. 1040ez forms free download The location of recreational clubs and religious organizations of which you are a member. 1040ez forms free download Property used partly as your main home. 1040ez forms free download   If you use only part of the property as your main home, the rules discussed in this publication apply only to the gain or loss on the sale of that part of the property. 1040ez forms free download For details, see Business Use or Rental of Home , later. 1040ez forms free download Figuring Gain or Loss To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. 1040ez forms free download Subtract the adjusted basis from the amount realized to get your gain or loss. 1040ez forms free download     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. 1040ez forms free download   Gain is the excess of the amount realized over the adjusted basis of the property. 1040ez forms free download Loss. 1040ez forms free download   Loss is the excess of the adjusted basis over the amount realized for the property. 1040ez forms free download Selling Price The selling price is the total amount you receive for your home. 1040ez forms free download It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale. 1040ez forms free download Personal property. 1040ez forms free download   The selling price of your home does not include amounts you received for personal property sold with your home. 1040ez forms free download Personal property is property that is not a permanent part of the home. 1040ez forms free download Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. 1040ez forms free download Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). 1040ez forms free download Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. 1040ez forms free download Payment by employer. 1040ez forms free download   You may have to sell your home because of a job transfer. 1040ez forms free download If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. 1040ez forms free download Your employer will include it as wages in box 1 of your Form W-2 and you will include it in your income on Form 1040, line 7, or on Form 1040NR, line 8. 1040ez forms free download Option to buy. 1040ez forms free download   If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. 1040ez forms free download If the option is not exercised, you must report the amount as ordinary income in the year the option expires. 1040ez forms free download Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. 1040ez forms free download Form 1099-S. 1040ez forms free download   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. 1040ez forms free download   However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. 1040ez forms free download Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. 1040ez forms free download Amount Realized The amount realized is the selling price minus selling expenses. 1040ez forms free download Selling expenses. 1040ez forms free download   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. 1040ez forms free download ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. 1040ez forms free download This adjusted basis must be determined before you can figure gain or loss on the sale of your home. 1040ez forms free download For information on how to figure your home's adjusted basis, see Determining Basis , later. 1040ez forms free download Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. 1040ez forms free download Gain on sale. 1040ez forms free download   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, generally is taxable. 1040ez forms free download Loss on sale. 1040ez forms free download   If the amount realized is less than the adjusted basis, the difference is a loss. 1040ez forms free download Generally, a loss on the sale of your main home cannot be deducted. 1040ez forms free download Jointly owned home. 1040ez forms free download   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. 1040ez forms free download Separate returns. 1040ez forms free download   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. 1040ez forms free download Your ownership interest is generally determined by state law. 1040ez forms free download Joint owners not married. 1040ez forms free download   If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. 1040ez forms free download Each of you applies the rules discussed in this publication on an individual basis. 1040ez forms free download Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. 1040ez forms free download Foreclosure or repossession. 1040ez forms free download   If your home was foreclosed on or repossessed, you have a disposition. 1040ez forms free download See Publication 4681 to determine if you have ordinary income, gain, or loss. 1040ez forms free download More information. 1040ez forms free download   If part of a home is used for business or rental purposes, see Foreclosures and Repossessions in chapter 1 of Publication 544 for more information. 1040ez forms free download Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. 1040ez forms free download Abandonment. 1040ez forms free download   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. 1040ez forms free download Trading (exchanging) homes. 1040ez forms free download   If you trade your home for another home, treat the trade as a sale and a purchase. 1040ez forms free download Example. 1040ez forms free download You owned and lived in a home with an adjusted basis of $41,000. 1040ez forms free download A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. 1040ez forms free download This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). 1040ez forms free download If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed). 1040ez forms free download Transfer to spouse. 1040ez forms free download   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss (unless the Exception, discussed next, applies). 1040ez forms free download This is true even if you receive cash or other consideration for the home. 1040ez forms free download As a result, the rules explained in this publication do not apply. 1040ez forms free download   If you owned your home jointly with your spouse and transfer your interest in the home to your spouse, or to your former spouse incident to your divorce, the same rule applies. 1040ez forms free download You have no gain or loss. 1040ez forms free download Exception. 1040ez forms free download   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. 1040ez forms free download In that case, you generally will have a gain or loss. 1040ez forms free download More information. 1040ez forms free download    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. 1040ez forms free download Involuntary conversion. 1040ez forms free download   You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. 1040ez forms free download This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations (see Home destroyed or condemned ). 1040ez forms free download Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. 1040ez forms free download Your basis in your home is determined by how you got the home. 1040ez forms free download Generally, your basis is its cost if you bought it or built it. 1040ez forms free download If you got it in some other way (inheritance, gift, etc. 1040ez forms free download ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. 1040ez forms free download While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. 1040ez forms free download The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. 1040ez forms free download To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. 1040ez forms free download Filled-in examples of that worksheet are included in the Comprehensive Examples , later. 1040ez forms free download Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. 1040ez forms free download Purchase. 1040ez forms free download   If you bought your home, your basis is its cost to you. 1040ez forms free download This includes the purchase price and certain settlement or closing costs. 1040ez forms free download In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. 1040ez forms free download If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. 1040ez forms free download Seller-paid points. 1040ez forms free download   If the person who sold you your home paid points on your loan, you may have to reduce your home's basis by the amount of the points, as shown in the following chart. 1040ez forms free download    IF you bought your home. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download THEN reduce your home's basis by the seller-paid points. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. 1040ez forms free download after April 3, 1994 even if you did not deduct them. 1040ez forms free download Settlement fees or closing costs. 1040ez forms free download   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. 1040ez forms free download You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. 1040ez forms free download A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing). 1040ez forms free download   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. 1040ez forms free download   Some of the settlement fees or closing costs that you can include in your basis are: Abstract fees (abstract of title fees), Charges for installing utility services, Legal fees (including fees for the title search and preparing the sales contract and deed), Recording fees, Survey fees, Transfer or stamp taxes, Owner's title insurance, and Any amounts the seller owes that you agree to pay, such as: Certain real estate taxes (discussed later), Back interest, Recording or mortgage fees, Charges for improvements or repairs, and Sales commissions. 1040ez forms free download   Some settlement fees and closing costs you cannot include in your basis are: Fire insurance premiums, Rent for occupancy of the house before closing, Charges for utilities or other services related to occupancy of the house before closing, Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994), Charges connected with getting a mortgage loan, such as: Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs), Loan assumption fees, Cost of a credit report, Fee for an appraisal required by a lender, and Fees for refinancing a mortgage. 1040ez forms free download Real estate taxes. 1040ez forms free download   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. 1040ez forms free download    IF. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download AND. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download THEN the taxes. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download you pay taxes that the seller owed on the home up to the date of sale the seller does not reimburse you are added to the basis of your home. 1040ez forms free download the seller reimburses you do not affect the basis of your home. 1040ez forms free download the seller pays taxes for you (taxes owed beginning on the date of sale) you do not reimburse the seller are subtracted from the basis of your home. 1040ez forms free download you reimburse the seller do not affect the basis of your home. 1040ez forms free download Construction. 1040ez forms free download   If you contracted to have your house built on land you own, your basis is: The cost of the land, plus The amount it cost you to complete the house, including: The cost of labor and materials, Any amounts paid to a contractor, Any architect's fees, Building permit charges, Utility meter and connection charges, and Legal fees directly connected with building the house. 1040ez forms free download   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. 1040ez forms free download It also includes certain settlement or closing costs. 1040ez forms free download You may have to reduce your basis by points the seller paid for you. 1040ez forms free download For more information, see Seller-paid points and Settlement fees or closing costs , earlier. 1040ez forms free download Built by you. 1040ez forms free download   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. 1040ez forms free download Do not include in the cost of the house: The value of your own labor, or The value of any other labor you did not pay for. 1040ez forms free download Temporary housing. 1040ez forms free download   If a builder gave you temporary housing while your home was being finished, you must reduce your basis by the part of the contract price that was for the temporary housing. 1040ez forms free download To figure the amount of the reduction, multiply the contract price by a fraction. 1040ez forms free download The numerator is the value of the temporary housing, and the denominator is the sum of the value of the temporary housing plus the value of the new home. 1040ez forms free download Cooperative apartment. 1040ez forms free download   If you are a tenant-stockholder in a cooperative housing corporation, your basis in the cooperative apartment used as your home is usually the cost of your stock in the corporation. 1040ez forms free download This may include your share of a mortgage on the apartment building. 1040ez forms free download Condominium. 1040ez forms free download   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. 1040ez forms free download Basis Other Than Cost You must use a basis other than cost, such as adjusted basis or fair market value, if you received your home as a gift, inheritance, a trade, or from your spouse. 1040ez forms free download These situations are discussed in the following pages. 1040ez forms free download Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. 1040ez forms free download Other special rules may apply in certain situations. 1040ez forms free download If you converted the property, or some part of it, to business or rental use, see Property Changed to Business or Rental Use, in Publication 551. 1040ez forms free download Home received as gift. 1040ez forms free download   Use the following chart to find the basis of a home you received as a gift. 1040ez forms free download IF the donor's adjusted basis at the time of the gift was. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download THEN your basis is. 1040ez forms free download . 1040ez forms free download . 1040ez forms free download more than the fair market value of the home at that time the same as the donor's adjusted basis at the time of the gift. 1040ez forms free download   Exception: If using the donor's adjusted basis results in a loss when you sell the home, you must use the fair market value of the home at the time of the gift as your basis. 1040ez forms free download If using the fair market value results in a gain, you have neither gain nor loss. 1040ez forms free download equal to or less than the fair market value at that time, and you received the gift before 1977 the smaller of the: • donor's adjusted basis, plus  any federal gift tax paid on  the gift, or • the home's fair market value  at the time of the gift. 1040ez forms free download equal to or less than the fair market value at that time, and you received the gift after 1976 the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home (explained next). 1040ez forms free download Fair market value. 1040ez forms free download   The fair market value of property at the time of the gift is the value of the property as appraised for purposes of the federal gift tax. 1040ez forms free download If the gift was not subject to the federal gift tax, the fair market value is the value as appraised for the purposes of a state gift tax. 1040ez forms free download Part of federal gift tax due to net increase in value. 1040ez forms free download   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. 1040ez forms free download The numerator of the fraction is the net increase in the value of the home, and the denominator is the value of the home for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. 1040ez forms free download The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. 1040ez forms free download Home acquired from a decedent who died before or after 2010. 1040ez forms free download   If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent's death (or the later alternate valuation date chosen by the personal representative of the estate). 1040ez forms free download If an estate tax return was filed or required to be filed, the value of the property listed on the estate tax return is your basis. 1040ez forms free download If a federal estate tax return did not have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes. 1040ez forms free download Surviving spouse. 1040ez forms free download   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. 1040ez forms free download The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). 1040ez forms free download The basis in your interest will remain the same. 1040ez forms free download Your new basis in the home is the total of these two amounts. 1040ez forms free download   If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home. 1040ez forms free download Example. 1040ez forms free download Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. 1040ez forms free download Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value). 1040ez forms free download Community property. 1040ez forms free download   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. 1040ez forms free download When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. 1040ez forms free download For this to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. 1040ez forms free download   For more information about community property, see Publication 555, Community Property. 1040ez forms free download    If you are selling a home in which you acquired an interest from a decedent who died in 2010, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your basis. 1040ez forms free download Home received as trade. 1040ez forms free download   If you acquired your home as a trade for other property, in most cases, the basis of your home is the fair market value (at the time of the trade) of the property you gave up. 1040ez forms free download If you traded one home for another, you have made a sale and purchase. 1040ez forms free download In that case, you may have a gain. 1040ez forms free download See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. 1040ez forms free download Home received from spouse. 1040ez forms free download   If you received your home from your spouse or from your former spouse incident to your divorce, your basis in the home depends on the date of the transfer. 1040ez forms free download Transfers after July 18, 1984. 1040ez forms free download   If you received the home after July 18, 1984, there was no gain or loss on the transfer. 1040ez forms free download In most cases, your basis in this home is the same as your spouse's (or former spouse's) adjusted basis just before you received it. 1040ez forms free download This rule applies even if you received the home in exchange for cash, the release of marital rights, the assumption of liabilities, or other considerations. 1040ez forms free download   If you owned a home jointly with your spouse and your spouse transferred his or her interest in the home to you, in most cases, your basis in the half interest received from your spouse is the same as your spouse's adjusted basis just before the transfer. 1040ez forms free download This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. 1040ez forms free download Your basis in the half interest you already owned does not change. 1040ez forms free download Your new basis in the home is the total of these two amounts. 1040ez forms free download Transfers before July 19, 1984. 1040ez forms free download   If you received your home before July 19, 1984, in exchange for your release of marital rights, in most cases, your basis in the home is generally its fair market value at the time you received it. 1040ez forms free download More information. 1040ez forms free download   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. 1040ez forms free download Involuntary conversion. 1040ez forms free download   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. 1040ez forms free download If you acquired a replacement home with these proceeds, the basis is its cost decreased by any gain not recognized on the conversion under the rules explained in: Publication 547, in the case of a home that was destroyed, or Chapter 1 of Publication 544, in the case of a home that was condemned. 1040ez forms free download Example. 1040ez forms free download A fire destroyed your home that you owned and used for only 6 months. 1040ez forms free download The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. 1040ez forms free download Your gain is $50,000 ($130,000 − $80,000). 1040ez forms free download You bought a replacement home for $100,000. 1040ez forms free download The part of your gain that is taxable is $30,000 ($130,000 − $100,000), the unspent part of the payment from the insurance company. 1040ez forms free download The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. 1040ez forms free download The basis of the new home is figured as follows. 1040ez forms free download Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. 1040ez forms free download   For more information about basis, see Publication 551. 1040ez forms free download Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. 1040ez forms free download To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. 1040ez forms free download Filled-in examples of that worksheet are included in Comprehensive Examples , later. 1040ez forms free download Recordkeeping. 1040ez forms free download You should keep records to prove your home's adjusted basis. 1040ez forms free download Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. 1040ez forms free download But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. 1040ez forms free download Keep records proving the basis of both homes as long as they are needed for tax purposes. 1040ez forms free download The records you should keep include: Proof of the home's purchase price and purchase expenses; Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis; Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain; Any Form 982 you filed to exclude any discharge of qualified principal residence indebtedness; Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997; and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. 1040ez forms free download Increases to Basis These include the following. 1040ez forms free download Additions and other improvements that have a useful life of more than 1 year. 1040ez forms free download Special assessments for local improvements. 1040ez forms free download Amounts you spent after a casualty to restore damaged property. 1040ez forms free download Improvements. 1040ez forms free download   These add to the value of your home, prolong its useful life, or adapt it to new uses. 1040ez forms free download You add the cost of additions and other improvements to the basis of your property. 1040ez forms free download   The following chart lists some other examples of improvements. 1040ez forms free download Examples of Improvements That Increase Basis Additions Bedroom Bathroom Deck Garage Porch Patio Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Lawn & Grounds Landscaping Driveway Walkway Fence  Retaining wall Sprinkler system Swimming pool  Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system  Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances  Kitchen modernization  Flooring Wall-to-wall carpeting  Insulation Attic Walls Floors Pipes and duct work Improvements no longer part of home. 1040ez forms free download   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. 1040ez forms free download Example. 1040ez forms free download You put wall-to-wall carpeting in your home 15 years ago. 1040ez forms free download Later, you replaced that carpeting with new wall-to-wall carpeting. 1040ez forms free download The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. 1040ez forms free download Repairs. 1040ez forms free download   These maintain your home in good condition but do not add to its value or prolong its life. 1040ez forms free download You do not add their cost to the basis of your property. 1040ez forms free download Examples. 1040ez forms free download Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. 1040ez forms free download Exception. 1040ez forms free download   The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. 1040ez forms free download For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition. 1040ez forms free download Decreases to Basis These include the following. 1040ez forms free download Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). 1040ez forms free download For details, see Publication 4681. 1040ez forms free download Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. 1040ez forms free download For details, see Publication 4681. 1040ez forms free download Gain you postponed from the sale of a previous home before May 7, 1997. 1040ez forms free download Deductible casualty losses. 1040ez forms free download Insurance payments you received or expect to receive for casualty losses. 1040ez forms free download Payments you received for granting an easement or right-of-way. 1040ez forms free download Depreciation allowed or allowable if you used your home for business or rental purposes. 1040ez forms free download Energy-related credits allowed for expenditures made on the residence. 1040ez forms free download (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. 1040ez forms free download ) Adoption credit you claimed for improvements added to the basis of your home. 1040ez forms free download Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. 1040ez forms free download Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. 1040ez forms free download An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home. 1040ez forms free download District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. 1040ez forms free download General sales taxes claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. 1040ez forms free download Discharges of qualified principal residence indebtedness. 1040ez forms free download   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. 1040ez forms free download This exclusion applies to discharges made after 2006 and before 2014. 1040ez forms free download If you choose to exclude this income, you must reduce (but not below zero) the basis of your principal residence by the amount excluded from gross income. 1040ez forms free download   File Form 982 with your tax return. 1040ez forms free download See the form's instructions for detailed information. 1040ez forms free download    A decrease in basis due to a discharge of qualified principal residence indebtedness that is excluded from income occurs only if you retain ownership of the principal residence after a discharge. 1040ez forms free download In most cases, this would occur in a refinancing or a restructuring of the mortgage. 1040ez forms free download Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. 1040ez forms free download This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion , next. 1040ez forms free download To qualify, you must meet the ownership and use tests described later. 1040ez forms free download You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. 1040ez forms free download This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale. 1040ez forms free download You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. 1040ez forms free download If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. 1040ez forms free download See Publication 505, Tax Withholding and Estimated Tax. 1040ez forms free download Maximum Exclusion You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. 1040ez forms free download You meet the ownership test. 1040ez forms free download You meet the use test. 1040ez forms free download During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 1040ez forms free download For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. 1040ez forms free download If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed. 1040ez forms free download You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . 1040ez forms free download Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 1040ez forms free download This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). 1040ez forms free download Exception. 1040ez forms free download   If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. 1040ez forms free download However, the maximum amount you may be able to exclude will be reduced. 1040ez forms free download See Reduced Maximum Exclusion , later. 1040ez forms free download Example 1—home owned and occupied for at least 2 years. 1040ez forms free download Mya bought and moved into her main home in September 2011. 1040ez forms free download She sold the home at a gain in October 2013. 1040ez forms free download During the 5-year period ending on the date of sale in October 2013, she owned and lived in the home for more than 2 years. 1040ez forms free download She meets the ownership and use tests. 1040ez forms free download Example 2—ownership test met but use test not met. 1040ez forms free download Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. 1040ez forms free download He later sold the home for a gain in June 2013. 1040ez forms free download He owned the home during the entire 5-year period ending on the date of sale. 1040ez forms free download He meets the ownership test but not the use test. 1040ez forms free download He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). 1040ez forms free download Period of Ownership and Use The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. 1040ez forms free download You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale. 1040ez forms free download Example. 1040ez forms free download Naomi bought and moved into a house in July 2009. 1040ez forms free download She lived there for 13 months and then moved in with a friend. 1040ez forms free download She later moved back into her house and lived there for 12 months until she sold it in August 2013. 1040ez forms free download Naomi meets the ownership and use tests because, during the 5-year period ending on the date of sale, she owned the house for more than 2 years and lived in it for a total of 25 (13 + 12) months. 1040ez forms free download Temporary absence. 1040ez forms free download   Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. 1040ez forms free download The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. 1040ez forms free download Example 1. 1040ez forms free download David Johnson, who is single, bought and moved into his home on February 1, 2011. 1040ez forms free download Each year during 2011 and 2012, David left his home for a 2-month summer vacation. 1040ez forms free download David sold the house on March 1, 2013. 1040ez forms free download Although the total time David lived in his home is less than 2 years (21 months), he meets the use requirement and may exclude gain. 1040ez forms free download The 2-month vacations are short temporary absences and are counted as periods of use in determining whether David used the home for the required 2 years. 1040ez forms free download Example 2. 1040ez forms free download Professor Paul Beard, who is single, bought and moved into a house in December 2010, went abroad for a 1-year sabbatical leave in January 2012, returned to the house in January 2013, and sold it at a gain in February 2013. 1040ez forms free download Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. 1040ez forms free download He cannot exclude any part of his gain because he did not use the residence for the required 2 years. 1040ez forms free download Ownership and use tests met at different times. 1040ez forms free download   You can meet the ownership and use tests during different 2-year periods. 1040ez forms free download However, you must meet both tests during the 5-year period ending on the date of the sale. 1040ez forms free download Example. 1040ez forms free download Beginning in 2002, Helen Jones lived in a rented apartment. 1040ez forms free download The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. 1040ez forms free download In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. 1040ez forms free download On July 12, 2013, while still living in her daughter's home, she sold her condominium. 1040ez forms free download Helen can exclude gain on the sale of her condominium because she met the ownership and use tests during the 5-year period from July 13, 2008, to July 12, 2013, the date she sold the condominium. 1040ez forms free download She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). 1040ez forms free download She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). 1040ez forms free download The time Helen lived in her daughter's home during the 5-year period can be counted toward her period of ownership, and the time she lived in her rented apartment during the 5-year period can be counted toward her period of use. 1040ez forms free download Cooperative apartment. 1040ez forms free download   If you sold stock as a tenant-shareholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitled you to occupy as your main home for at least 2 years. 1040ez forms free download Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. 1040ez forms free download Exception for individuals with a disability. 1040ez forms free download   There is an exception to the use test if: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year during the 5-year period before the sale of your home. 1040ez forms free download Under this exception, you are considered to live in your home during any time within the 5-year period that you own the home and live in a facility (including a nursing home) licensed by a state or political subdivision to care for persons in your condition. 1040ez forms free download   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. 1040ez forms free download Previous home destroyed or condemned. 1040ez forms free download   For the ownership and use tests, you add the time you owned and lived in a previous home that was destroyed or condemned to the time you owned and lived in the replacement home on whose sale you wish to exclude gain. 1040ez forms free download This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home (see Involuntary Conversions in Publication 551). 1040ez forms free download Otherwise, you must have owned and lived in the same home for 2 of the 5 years before the sale to qualify for the exclusion. 1040ez forms free download Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 1040ez forms free download   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty (defined later) as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. 1040ez forms free download You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on qualified official extended duty (defined later) or as an enrolled volunteer or volunteer leader of the Peace Corps. 1040ez forms free download This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. 1040ez forms free download   If this helps you qualify to exclude gain, you can choose to have the 5-year test period suspended by filing a return for the year of sale that does not include the gain. 1040ez forms free download Example. 1040ez forms free download John bought and moved into a home in 2005. 1040ez forms free download He lived in it as his main home for 2½ years. 1040ez forms free download For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. 1040ez forms free download He then sold the home at a gain in 2013. 1040ez forms free download To meet the use test, John chooses to suspend the 5-year test period for the 6 years he was on qualified official extended duty. 1040ez forms free download This means he can disregard those 6 years. 1040ez forms free download Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. 1040ez forms free download He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. 1040ez forms free download Period of suspension. 1040ez forms free download   The period of suspension cannot last more than 10 years. 1040ez forms free download Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. 1040ez forms free download You cannot suspend the 5-year period for more than one property at a time. 1040ez forms free download You can revoke your choice to suspend the 5-year period at any time. 1040ez forms free download Example. 1040ez forms free download Mary bought a home on April 1, 1997. 1040ez forms free download She used it as her main home until August 31, 2000. 1040ez forms free download On September 1, 2000, she went on qualified official extended duty with the Navy. 1040ez forms free download She did not live in the house again before selling it on July 31, 2013. 1040ez forms free download Mary chooses to use the entire 10-year suspension period. 1040ez forms free download Therefore, the suspension period would extend back from July 31, 2013, to August 1, 2003, and the 5-year test period would extend back to August 1, 1998. 1040ez forms free download During that period, Mary owned the house all 5 years and lived in it as her main home from August 1, 1998, until August 31, 2000, a period of more than 24 months. 1040ez forms free download She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. 1040ez forms free download Uniformed services. 1040ez forms free download   The uniformed services are: The Armed Forces (the Army, Navy, Air Force, Marine Corps, and Coast Guard), The commissioned corps of the National Oceanic and Atmospheric Administration, and The commissioned corps of the Public Health Service. 1040ez forms free download Foreign Service member. 1040ez forms free download   For purposes of the choice to suspend the 5-year test period for ownership and use, you are a member of the Foreign Service if you are any of the following. 1040ez forms free download A Chief of mission. 1040ez forms free download An Ambassador at large. 1040ez forms free download A member of the Senior Foreign Service. 1040ez forms free download A Foreign Service officer. 1040ez forms free download Part of the Foreign Service personnel. 1040ez forms free download Employee of the intelligence community. 1040ez forms free download   For purposes of the choice to suspend the 5-year test period for ownership and use, you are an employee of the intelligence community if you are an employee of any of the following. 1040ez forms free download The Office of the Director of National Intelligence. 1040ez forms free download The Central Intelligence Agency. 1040ez forms free download The National Security Agency. 1040ez forms free download The Defense Intelligence Agency. 1040ez forms free download The National Geospatial-Intelligence Agency. 1040ez forms free download The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. 1040ez forms free download Any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard. 1040ez forms free download The Bureau of Intelligence and Research of the Department of State. 1040ez forms free download Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. 1040ez forms free download Qualified official extended duty. 1040ez forms free download   You are on qualified official extended duty if you are on extended duty while: Serving at a duty station at least 50 miles from your main home, or Living in Government quarters under Government orders. 1040ez forms free download   You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. 1040ez forms free download Married Persons If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. 1040ez forms free download (But see Special rules for joint returns, next. 1040ez forms free download ) Special rules for joint returns. 1040ez forms free download   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 1040ez forms free download You are married and file a joint return for the year. 1040ez forms free download Either you or your spouse meets the ownership test. 1040ez forms free download Both you and your spouse meet the use test. 1040ez forms free download During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. 1040ez forms free download If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. 1040ez forms free download For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. 1040ez forms free download Example 1—one spouse sells a home. 1040ez forms free download Emily sells her home in June 2013 for a gain of $300,000. 1040ez forms free download She marries Jamie later in the year. 1040ez forms free download She meets the ownership and use tests, but Jamie does not. 1040ez forms free download Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. 1040ez forms free download The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. 1040ez forms free download Example 2—each spouse sells a home. 1040ez forms free download The facts are the same as in Example 1 except that Jamie also sells a home in 2013 for a gain of $200,000 before he marries Emily. 1040ez forms free download He meets the ownership and use tests on his home, but Emily does not. 1040ez forms free download Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. 1040ez forms free download However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. 1040ez forms free download Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. 1040ez forms free download The $500,000 maximum exclusion for certain joint returns does not apply because Emily and Jamie do not both meet the use test for the same home. 1040ez forms free download Sale of main home by surviving spouse. 1040ez forms free download   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. 1040ez forms free download   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. 1040ez forms free download The sale or exchange took place after 2008. 1040ez forms free download The sale or exchange took place no more than 2 years after the date of death of your spouse. 1040ez forms free download You have not remarried. 1040ez forms free download You and your spouse met the use test at the time of your spouse's death. 1040ez forms free download You or your spouse met the ownership test at the time of your spouse's death. 1040ez forms free download Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. 1040ez forms free download The ownership and use tests were described earlier. 1040ez forms free download Example. 1040ez forms free download Harry owned and used a house as his main home since 2009. 1040ez forms free download Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. 1040ez forms free download Harry died on August 15, 2013, and Wilma inherited the property. 1040ez forms free download Wilma sold the property on September 1, 2013, at which time she had not remarried. 1040ez forms free download Although Wilma owned and used the house for less than 2 years, Wilma is considered to have satisfied the ownership and use tests because her period of ownership and use includes the period that Harry owned and used the property before death. 1040ez forms free download Home transferred from spouse. 1040ez forms free download   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. 1040ez forms free download Use of home after divorce. 1040ez forms free download   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. 1040ez forms free download Reduced Maximum Exclusion If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. 1040ez forms free download This applies to those who: Fail to meet the ownership and use tests, or Have used the exclusion within 2 years of selling their current home. 1040ez forms free download In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. 1040ez forms free download A change in place of employment. 1040ez forms free download Health. 1040ez forms free download Unforeseen circumstances. 1040ez forms free download Qualified individual. 1040ez forms free download   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. 1040ez forms free download You. 1040ez forms free download Your spouse. 1040ez forms free download A co-owner of the home. 1040ez forms free download A person whose main home is the same as yours. 1040ez forms free download Primary reason for sale. 1040ez forms free download   One of the three reasons above will be considered to be the primary reason you sold your home if either (1) or (2) is true. 1040ez forms free download You qualify under a “safe harbor. 1040ez forms free download ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. 1040ez forms free download Safe harbors corresponding to the reasons listed above are described later. 1040ez forms free download A safe harbor does not apply, but you can establish, based on facts and circumstances, that the primary reason for the sale is a change in place of employment, health, or unforeseen circumstances. 1040ez forms free download  Factors that may be relevant in determining your primary reason for sale include whether: Your sale and the circumstances causing it were close in time, The circumstances causing your sale occurred during the time you owned and used the property as your main home, The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home, Your financial ability to maintain the property became materially impaired, The suitability of the property as your main home materially changed, and During the time you owned the property, you used it as your home. 1040ez forms free download Change in Place of Employment You may qualify for a reduced exclusion if the primary reason for the sale of your main home is a change in the location of employment of a qualified individual. 1040ez forms free download Employment. 1040ez forms free download   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. 1040ez forms free download It also includes the start or continuation of self-employment. 1040ez forms free download Distance safe harbor. 1040ez forms free download   A change in place of employment is considered to be the reason you sold your home if: The change occurred during the period you owned and used the property as your main home, and The new place of employment is at least 50 miles farther from the home you sold than was the former place of employment (or, if there was no former place of employment, the distance between your new place of employment and the home sold is at least 50 miles). 1040ez forms free download Example. 1040ez forms free download Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. 1040ez forms free download He got a job in North Carolina and sold his townhouse in 2013. 1040ez forms free download Because the distance between Justin's new place of employment and the home he sold is at least 50 miles, the sale satisfies the conditions of the distance safe harbor. 1040ez forms free download Justin's sale of his home is considered to be because of a change in place of employment, and he is entitled to claim a reduced maximum exclusion of gain from the sale. 1040ez forms free download Health The sale of your main home is because of health if your primary reason for the sale is: To obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual, or To obtain or provide medical or personal care for a qualified individual suffering from a disease, illness, or injury. 1040ez forms free download The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. 1040ez forms free download For purposes of this reason, a qualified individual includes, in addition to the individuals listed earlier under Qualified individual , any of the following family members of these individuals. 1040ez forms free download Parent, grandparent, stepmother, stepfather. 1040ez forms free download Child, grandchild, stepchild, adopted child, eligible foster child. 1040ez forms free download Brother, sister, stepbrother, stepsister, half-brother, half-sister. 1040ez forms free download Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. 1040ez forms free download Uncle, aunt, nephew, niece, or cousin. 1040ez forms free download Example. 1040ez forms free download In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. 1040ez forms free download Lauren's father has a chronic disease and is unable to care for himself. 1040ez forms free download In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. 1040ez forms free download Because the primary reason for the sale of their home was to provide care for Lauren's father, Chase and Lauren are entitled to a reduced maximum exclusion. 1040ez forms free download Doctor's recommendation safe harbor. 1040ez forms free download   Health is considered to be the reason you sold your home if, for one or more of the reasons listed at the beginning of this discussion, a doctor recommends a change of residence. 1040ez forms free download Unforeseen Circumstances The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying that home. 1040ez forms free download You are not considered to have an unforeseen circumstance if the primary reason you sold your home was that you preferred to get a different home or because your finances improved. 1040ez forms free download Specific event safe harbors. 1040ez forms free download   Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home. 1040ez forms free download An involuntary conversion of your home, such as when your home is destroyed or condemned. 1040ez forms free download Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible. 1040ez forms free download In the case of qualified individuals (listed earlier under Qualified individual ): Death, Unemployment (if the individual is eligible for unemployment compensation), A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses , later) for his or her household, Divorce or legal separation under a decree of divorce or separate maintenance, or Multiple births resulting from the same pregnancy. 1040ez forms free download An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. 1040ez forms free download For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. 1040ez forms free download Reasonable basic living expenses. 1040ez forms free download   Reasonable basic living expenses for your household include the following. 1040ez forms free download Amounts spent for food. 1040ez forms free download Amounts spent for clothing. 1040ez forms free download Housing and related expenses. 1040ez forms free download Medical expenses. 1040ez forms free download Transportation expenses. 1040ez forms free download Tax payments. 1040ez forms free download Court-ordered payments. 1040ez forms free download Expenses reasonably necessary to produce income. 1040ez forms free download   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. 1040ez forms free download Nonqualified Use Gain from the sale or exchange of the main home is not excludable from income if it is allocable to periods of nonqualified use. 1040ez forms free download Nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions (see next). 1040ez forms free download Exceptions. 1040ez forms free download   A period of nonqualified use does not include: Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home; Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty: As a member of the uniformed services; As a member of the Foreign Service of the United States; or As an employee of the intelligence community; and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS. 1040ez forms free download Calculation. 1040ez forms free download   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain (net of any depreciation allowed or allowable on the property for periods after May 6, 1997) by the following fraction:   Total nonqualified use during the period of ownership after 2008     Total period of ownership     This calculation can be found in Worksheet 2, line 10, later in this publication. 1040ez forms free download   For examples of this calculation, see Business Use or Rental of Home , next. 1040ez forms free download Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income if you meet the ownership and use tests. 1040ez forms free download Example 1. 1040ez forms free download On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. 1040ez forms free download She moved in on that date and lived in it until May 31, 2009, when she moved out of the house and put it up for rent. 1040ez forms free download The house was rented from June 1, 2009, to March 31, 2011. 1040ez forms free download Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. 1040ez forms free download Amy moved back into the house on April 1, 2011, and lived there until she sold it on January 31, 2013, for a gain of $200,000. 1040ez forms free download During the 5-year period ending on the date of the sale (January 31, 2008–January 31, 2013), Amy owned and lived in the house for more than 2 years as shown in the following table. 1040ez forms free download Five-Year Period Used as Home Used as Rental 1/31/08 – 5/31/09 16 months   6/01/09 – 3/31/11   22 months 4/01/11 – 1/31/13 22 months     38 months 22 months       During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. 1040ez forms free download Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain, as shown on Worksheet 2. 1040ez forms free download Example 2. 1040ez forms free download William owned and used a house as his main home from 2007 through 2010. 1040ez forms free download On January 1, 2011, he moved to another state. 1040ez forms free download He rented his house from that date until April 30, 2013, when he sold it. 1040ez forms free download During the 5-year period ending on the date of sale (May 1, 2008-April 30, 2013), William owned and lived in the house for more than 2 years. 1040ez forms free download Because it was rental property at the time of the sale, he must report the sale on Form 4797. 1040ez forms free download Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. 1040ez forms free download Because he met the ownership and use tests, he can exclude gain up to $250,000. 1040ez forms free download However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next. 1040ez forms free download Depreciation after May 6, 1997. 1040ez forms free download   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. 1040ez forms free download If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. 1040ez forms free download Unrecaptured section 1250 gain. 1040ez forms free download   This is the part of any long-term capital gain from the sale of your home that is due to depreciation and cannot be excluded. 1040ez forms free download To figure the amount of unrecaptured section 1250 gain to be reported on Schedule D (Form 1040), you must also take into account certain gains or losses from the sale of property other than your home. 1040ez forms free download Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. 1040ez forms free download Worksheet 2. 1040ez forms free download Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. 1040ez forms free download Gain or (Loss) on Sale       1. 1040ez forms free download   Selling price of home 1. 1040ez forms free download     2. 1040ez forms free download   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. 1040ez forms free download     3. 1040ez forms free download   Subtract line 2 from line 1. 1040ez forms free download This is the amount realized 3. 1040ez forms free download     4. 1040ez forms free download   Adjusted basis of home sold (from Worksheet 1, line 13) 4. 1040ez forms free download     5. 1040ez forms free download   Gain or (loss) on the sale. 1040ez forms free download Subtract line 4 from line 3. 1040ez forms free download If this is a loss, stop here 5. 1040ez forms free download 200,000   Part 2. 1040ez forms free download Exclusion and Taxable Gain       6. 1040ez forms free download   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. 1040ez forms free download If none, enter -0- 6. 1040ez forms free download 10,000   7. 1040ez forms free download   Subtract line 6 from line 5. 1040ez forms free download If the result is less than zero, enter -0- 7. 1040ez forms free download 190,000   8. 1040ez forms free download   Aggregate number of days of nonqualified use after 2008. 1040ez forms free download If none, enter -0-. 1040ez forms free download  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. 1040ez forms free download 668   9. 1040ez forms free download   Number of days taxpayer owned the property 9. 1040ez forms free download 2,080   10. 1040ez forms free download   Divide the amount on line 8 by the amount on line 9. 1040ez forms free download Enter the result as a decimal (rounded to at least 3 places). 1040ez forms free download But do not enter an amount greater than 1. 1040ez forms free download 00 10. 1040ez forms free download 0. 1040ez forms free download 321   11. 1040ez forms free download   Gain allocated to nonqualified use. 1040ez forms free download (Line 7 multiplied by line 10) 11. 1040ez forms free download 60,990   12. 1040ez forms free download   Gain eligible for exclusion. 1040ez forms free download Subtract line 11 from line 7 12. 1040ez forms free download 129,010   13. 1040ez forms free download   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). 1040ez forms free download  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. 1040ez forms free download If you do  not qualify to exclude gain, enter -0- 13. 1040ez forms free download 250,000   14. 1040ez forms free download   Exclusion. 1040ez forms free download Enter the smaller of line 12 or line 13 14. 1040ez forms free download 129,010   15. 1040ez forms free download   Taxable gain. 1040ez forms free download Subtract line 14 from line 5. 1040ez forms free download Report your taxable gain as described under Reporting the Sale . 1040ez forms free download If the amount on line 6 is more than zero, complete line 16 15. 1040ez forms free download 70,990   16. 1040ez forms free download   Enter the smaller of line 6 or line 15. 1040ez forms free download Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. 1040ez forms free download 10,000 Property Used Partly for Business or Rental If you use property partly as a home and partly for business or to produce rental income, the treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. 1040ez forms free download Part of Home Used for Business or Rental If the part of your property used for business or to produce rental income is within your home, such as a room used as a home office for a business, you do not need to allocate gain on the sale of the property between the business part of the property and the part used as a home. 1040ez forms free download In addition, you do not need to report the sale of the business or rental part on Form 4797. 1040ez forms free download This is true whether or not you were entitled to claim any depreciation. 1040ez forms free download However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. 1040ez forms free download See Depreciation after May 6, 1997, earlier. 1040ez forms free download Example 1. 1040ez forms free download Ray sold his main home in 2013 at a $30,000 gain. 1040ez forms free download He has no gains or losses from the sale of property other than the gain from the sale of his home. 1040ez forms free download He meets the ownership and use tests to exclude the gain from his income. 1040ez forms free download However, he used part of the home as a business office in 2012 and claimed $500 depreciation. 1040ez forms free download Because the business office was part of his home (not separate from it), he does not have to allocate the gain on the sale between the business part of the property and the part used as a home. 1040ez forms free download In addition, he does not have to report any part of the gain on Form 4797. 1040ez forms free download Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. 1040ez forms free download He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). 1040ez forms free download Example 2. 1040ez forms free download The facts are the same as in Example 1 except that Ray was not entitled to claim depreciation for the business use of his home. 1040ez forms free download Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. 1040ez forms free download Separate Part of Property Used for Business or Rental You may have used part of your property as your home and a separate part of it for business or to produce rental income. 1040ez forms free download Examples are: A working farm on which your house was located, A duplex in w