File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Federal Form 1040ez

Free Federal Tax E FilingFederal Income Tax Forms 1040ezTurbotax 1040x FormTaxact Online 20112012 Tax Form 1040ezHow To File Amended Tax ReturnQuicktaxI Want To File My 2011 TaxesE File 2009 TaxesWhere To File My State Taxes For FreeWho Can Use 1040ez FormAmend 1040ez Tax FormHow To Amend Your 2012 Tax ReturnHow Do I File 2011 Tax ReturnState Tax Mailing Address1040 Income Tax FormTax Preparation For MilitaryBack Tax Returns1040ez Form 2011Irs Free Efile1040ez Fillable FormH&rblock ComState Income Tax Form 2012H&r Block Free Tax File 2012Turbo Tax Free FileTurbotax 2012 Tax Return2012 Ez Tax Form2011 Taxes Online1040nr Ez 2011Hr Block 1040nr2011 Tax Forms 1040 Instructions1040ez Refund104ezFree HrblockTax Amendment FormsIncome State Tax FormsForm 1040 Federal Tax FormFile An Amended Tax ReturnOnline Tax FilingFederal Tax Ez Form

Federal Form 1040ez

Federal form 1040ez Publication 523 - Main Content Table of Contents Main HomeVacant land. Federal form 1040ez Factors used to determine main home. Federal form 1040ez 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. Federal form 1040ez Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. Federal form 1040ez Individual taxpayer identification number (ITIN). Federal form 1040ez More information. Federal form 1040ez Comprehensive Examples Special SituationsException for sales to related persons. Federal form 1040ez Deducting Taxes in the Year of SaleForm 1099-S. Federal form 1040ez More information. Federal form 1040ez Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. Federal form 1040ez Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. Federal form 1040ez ” 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. Federal form 1040ez 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. Federal form 1040ez Land. Federal form 1040ez   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. Federal form 1040ez Example. Federal form 1040ez You buy a piece of land and move your main home to it. Federal form 1040ez Then, you sell the land on which your main home was located. Federal form 1040ez This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Federal form 1040ez Vacant land. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez See Excluding the Gain , later. Federal form 1040ez The destruction of your home is treated as a sale of your home. Federal form 1040ez 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. Federal form 1040ez For information, see Publication 547. Federal form 1040ez More than one home. Federal form 1040ez   If you have more than one home, you can exclude gain only from the sale of your main home. Federal form 1040ez You must include in income the gain from the sale of any other home. Federal form 1040ez 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. Federal form 1040ez Example 1. Federal form 1040ez You own two homes, one in New York and one in Florida. Federal form 1040ez 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. Federal form 1040ez In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Federal form 1040ez You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Federal form 1040ez Example 2. Federal form 1040ez You own a house, but you live in another house that you rent. Federal form 1040ez The rented house is your main home. Federal form 1040ez Example 3. Federal form 1040ez You own two homes, one in Virginia and one in New Hampshire. Federal form 1040ez In 2009 and 2010, you lived in the Virginia home. Federal form 1040ez In 2011 and 2012, you lived in the New Hampshire home. Federal form 1040ez In 2013, you lived again in the Virginia home. Federal form 1040ez Your main home in 2009, 2010, and 2013 is the Virginia home. Federal form 1040ez Your main home in 2011 and 2012 is the New Hampshire home. Federal form 1040ez You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Federal form 1040ez Factors used to determine main home. Federal form 1040ez   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. Federal form 1040ez Those factors include the following. Federal form 1040ez Your place of employment. Federal form 1040ez The location of your family members' main home. Federal form 1040ez Your mailing address for bills and correspondence. Federal form 1040ez The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. Federal form 1040ez The location of the banks you use. Federal form 1040ez The location of recreational clubs and religious organizations of which you are a member. Federal form 1040ez Property used partly as your main home. Federal form 1040ez   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. Federal form 1040ez For details, see Business Use or Rental of Home , later. Federal form 1040ez 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. Federal form 1040ez Subtract the adjusted basis from the amount realized to get your gain or loss. Federal form 1040ez     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. Federal form 1040ez   Gain is the excess of the amount realized over the adjusted basis of the property. Federal form 1040ez Loss. Federal form 1040ez   Loss is the excess of the adjusted basis over the amount realized for the property. Federal form 1040ez Selling Price The selling price is the total amount you receive for your home. Federal form 1040ez 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. Federal form 1040ez Personal property. Federal form 1040ez   The selling price of your home does not include amounts you received for personal property sold with your home. Federal form 1040ez Personal property is property that is not a permanent part of the home. Federal form 1040ez Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. Federal form 1040ez Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). Federal form 1040ez Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. Federal form 1040ez Payment by employer. Federal form 1040ez   You may have to sell your home because of a job transfer. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Option to buy. Federal form 1040ez   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. Federal form 1040ez If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Federal form 1040ez Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. Federal form 1040ez Form 1099-S. Federal form 1040ez   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. Federal form 1040ez   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. Federal form 1040ez Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Federal form 1040ez Amount Realized The amount realized is the selling price minus selling expenses. Federal form 1040ez Selling expenses. Federal form 1040ez   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Federal form 1040ez ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Federal form 1040ez This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Federal form 1040ez For information on how to figure your home's adjusted basis, see Determining Basis , later. Federal form 1040ez Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Federal form 1040ez Gain on sale. Federal form 1040ez   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. Federal form 1040ez Loss on sale. Federal form 1040ez   If the amount realized is less than the adjusted basis, the difference is a loss. Federal form 1040ez Generally, a loss on the sale of your main home cannot be deducted. Federal form 1040ez Jointly owned home. Federal form 1040ez   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Federal form 1040ez Separate returns. Federal form 1040ez   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Federal form 1040ez Your ownership interest is generally determined by state law. Federal form 1040ez Joint owners not married. Federal form 1040ez   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. Federal form 1040ez Each of you applies the rules discussed in this publication on an individual basis. Federal form 1040ez Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Federal form 1040ez Foreclosure or repossession. Federal form 1040ez   If your home was foreclosed on or repossessed, you have a disposition. Federal form 1040ez See Publication 4681 to determine if you have ordinary income, gain, or loss. Federal form 1040ez More information. Federal form 1040ez   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. Federal form 1040ez Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. Federal form 1040ez Abandonment. Federal form 1040ez   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Federal form 1040ez Trading (exchanging) homes. Federal form 1040ez   If you trade your home for another home, treat the trade as a sale and a purchase. Federal form 1040ez Example. Federal form 1040ez You owned and lived in a home with an adjusted basis of $41,000. Federal form 1040ez 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. Federal form 1040ez This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). Federal form 1040ez 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). Federal form 1040ez Transfer to spouse. Federal form 1040ez   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). Federal form 1040ez This is true even if you receive cash or other consideration for the home. Federal form 1040ez As a result, the rules explained in this publication do not apply. Federal form 1040ez   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. Federal form 1040ez You have no gain or loss. Federal form 1040ez Exception. Federal form 1040ez   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. Federal form 1040ez In that case, you generally will have a gain or loss. Federal form 1040ez More information. Federal form 1040ez    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. Federal form 1040ez Involuntary conversion. Federal form 1040ez   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. Federal form 1040ez 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 ). Federal form 1040ez Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Federal form 1040ez Your basis in your home is determined by how you got the home. Federal form 1040ez Generally, your basis is its cost if you bought it or built it. Federal form 1040ez If you got it in some other way (inheritance, gift, etc. Federal form 1040ez ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Federal form 1040ez While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Federal form 1040ez 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. Federal form 1040ez To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. Federal form 1040ez Filled-in examples of that worksheet are included in the Comprehensive Examples , later. Federal form 1040ez Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Federal form 1040ez Purchase. Federal form 1040ez   If you bought your home, your basis is its cost to you. Federal form 1040ez This includes the purchase price and certain settlement or closing costs. Federal form 1040ez 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. Federal form 1040ez If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. Federal form 1040ez Seller-paid points. Federal form 1040ez   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. Federal form 1040ez    IF you bought your home. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez THEN reduce your home's basis by the seller-paid points. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. Federal form 1040ez after April 3, 1994 even if you did not deduct them. Federal form 1040ez Settlement fees or closing costs. Federal form 1040ez   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Federal form 1040ez 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. Federal form 1040ez 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). Federal form 1040ez   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Federal form 1040ez   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. Federal form 1040ez   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. Federal form 1040ez Real estate taxes. Federal form 1040ez   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. Federal form 1040ez    IF. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez AND. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez THEN the taxes. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez 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. Federal form 1040ez the seller reimburses you do not affect the basis of your home. Federal form 1040ez 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. Federal form 1040ez you reimburse the seller do not affect the basis of your home. Federal form 1040ez Construction. Federal form 1040ez   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. Federal form 1040ez   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. Federal form 1040ez It also includes certain settlement or closing costs. Federal form 1040ez You may have to reduce your basis by points the seller paid for you. Federal form 1040ez For more information, see Seller-paid points and Settlement fees or closing costs , earlier. Federal form 1040ez Built by you. Federal form 1040ez   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Federal form 1040ez 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. Federal form 1040ez Temporary housing. Federal form 1040ez   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. Federal form 1040ez To figure the amount of the reduction, multiply the contract price by a fraction. Federal form 1040ez 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. Federal form 1040ez Cooperative apartment. Federal form 1040ez   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. Federal form 1040ez This may include your share of a mortgage on the apartment building. Federal form 1040ez Condominium. Federal form 1040ez   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. Federal form 1040ez 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. Federal form 1040ez These situations are discussed in the following pages. Federal form 1040ez Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. Federal form 1040ez Other special rules may apply in certain situations. Federal form 1040ez 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. Federal form 1040ez Home received as gift. Federal form 1040ez   Use the following chart to find the basis of a home you received as a gift. Federal form 1040ez IF the donor's adjusted basis at the time of the gift was. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez THEN your basis is. Federal form 1040ez . Federal form 1040ez . Federal form 1040ez 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. Federal form 1040ez   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. Federal form 1040ez If using the fair market value results in a gain, you have neither gain nor loss. Federal form 1040ez 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. Federal form 1040ez 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). Federal form 1040ez Fair market value. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez Part of federal gift tax due to net increase in value. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. Federal form 1040ez Home acquired from a decedent who died before or after 2010. Federal form 1040ez   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). Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Surviving spouse. Federal form 1040ez   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. Federal form 1040ez The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). Federal form 1040ez The basis in your interest will remain the same. Federal form 1040ez Your new basis in the home is the total of these two amounts. Federal form 1040ez   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. Federal form 1040ez Example. Federal form 1040ez 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. Federal form 1040ez 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). Federal form 1040ez Community property. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez   For more information about community property, see Publication 555, Community Property. Federal form 1040ez    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. Federal form 1040ez Home received as trade. Federal form 1040ez   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. Federal form 1040ez If you traded one home for another, you have made a sale and purchase. Federal form 1040ez In that case, you may have a gain. Federal form 1040ez See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. Federal form 1040ez Home received from spouse. Federal form 1040ez   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. Federal form 1040ez Transfers after July 18, 1984. Federal form 1040ez   If you received the home after July 18, 1984, there was no gain or loss on the transfer. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez   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. Federal form 1040ez This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. Federal form 1040ez Your basis in the half interest you already owned does not change. Federal form 1040ez Your new basis in the home is the total of these two amounts. Federal form 1040ez Transfers before July 19, 1984. Federal form 1040ez   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. Federal form 1040ez More information. Federal form 1040ez   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. Federal form 1040ez Involuntary conversion. Federal form 1040ez   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. Federal form 1040ez 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. Federal form 1040ez Example. Federal form 1040ez A fire destroyed your home that you owned and used for only 6 months. Federal form 1040ez The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. Federal form 1040ez Your gain is $50,000 ($130,000 − $80,000). Federal form 1040ez You bought a replacement home for $100,000. Federal form 1040ez 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. Federal form 1040ez The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. Federal form 1040ez The basis of the new home is figured as follows. Federal form 1040ez Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. Federal form 1040ez   For more information about basis, see Publication 551. Federal form 1040ez Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Federal form 1040ez To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. Federal form 1040ez Filled-in examples of that worksheet are included in Comprehensive Examples , later. Federal form 1040ez Recordkeeping. Federal form 1040ez You should keep records to prove your home's adjusted basis. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Keep records proving the basis of both homes as long as they are needed for tax purposes. Federal form 1040ez 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. Federal form 1040ez Increases to Basis These include the following. Federal form 1040ez Additions and other improvements that have a useful life of more than 1 year. Federal form 1040ez Special assessments for local improvements. Federal form 1040ez Amounts you spent after a casualty to restore damaged property. Federal form 1040ez Improvements. Federal form 1040ez   These add to the value of your home, prolong its useful life, or adapt it to new uses. Federal form 1040ez You add the cost of additions and other improvements to the basis of your property. Federal form 1040ez   The following chart lists some other examples of improvements. Federal form 1040ez 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. Federal form 1040ez   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Federal form 1040ez Example. Federal form 1040ez You put wall-to-wall carpeting in your home 15 years ago. Federal form 1040ez Later, you replaced that carpeting with new wall-to-wall carpeting. Federal form 1040ez The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Federal form 1040ez Repairs. Federal form 1040ez   These maintain your home in good condition but do not add to its value or prolong its life. Federal form 1040ez You do not add their cost to the basis of your property. Federal form 1040ez Examples. Federal form 1040ez Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Federal form 1040ez Exception. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez Decreases to Basis These include the following. Federal form 1040ez Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). Federal form 1040ez For details, see Publication 4681. Federal form 1040ez Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Federal form 1040ez For details, see Publication 4681. Federal form 1040ez Gain you postponed from the sale of a previous home before May 7, 1997. Federal form 1040ez Deductible casualty losses. Federal form 1040ez Insurance payments you received or expect to receive for casualty losses. Federal form 1040ez Payments you received for granting an easement or right-of-way. Federal form 1040ez Depreciation allowed or allowable if you used your home for business or rental purposes. Federal form 1040ez Energy-related credits allowed for expenditures made on the residence. Federal form 1040ez (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Federal form 1040ez ) Adoption credit you claimed for improvements added to the basis of your home. Federal form 1040ez Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. Federal form 1040ez 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. Federal form 1040ez Discharges of qualified principal residence indebtedness. Federal form 1040ez   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Federal form 1040ez This exclusion applies to discharges made after 2006 and before 2014. Federal form 1040ez 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. Federal form 1040ez   File Form 982 with your tax return. Federal form 1040ez See the form's instructions for detailed information. Federal form 1040ez    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. Federal form 1040ez In most cases, this would occur in a refinancing or a restructuring of the mortgage. Federal form 1040ez Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Federal form 1040ez 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. Federal form 1040ez To qualify, you must meet the ownership and use tests described later. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. Federal form 1040ez If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Federal form 1040ez See Publication 505, Tax Withholding and Estimated Tax. Federal form 1040ez 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. Federal form 1040ez You meet the ownership test. Federal form 1040ez You meet the use test. Federal form 1040ez During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Federal form 1040ez For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. Federal form 1040ez 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. Federal form 1040ez 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 . Federal form 1040ez Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Federal form 1040ez 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). Federal form 1040ez Exception. Federal form 1040ez   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. Federal form 1040ez However, the maximum amount you may be able to exclude will be reduced. Federal form 1040ez See Reduced Maximum Exclusion , later. Federal form 1040ez Example 1—home owned and occupied for at least 2 years. Federal form 1040ez Mya bought and moved into her main home in September 2011. Federal form 1040ez She sold the home at a gain in October 2013. Federal form 1040ez 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. Federal form 1040ez She meets the ownership and use tests. Federal form 1040ez Example 2—ownership test met but use test not met. Federal form 1040ez Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Federal form 1040ez He later sold the home for a gain in June 2013. Federal form 1040ez He owned the home during the entire 5-year period ending on the date of sale. Federal form 1040ez He meets the ownership test but not the use test. Federal form 1040ez He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Example. Federal form 1040ez Naomi bought and moved into a house in July 2009. Federal form 1040ez She lived there for 13 months and then moved in with a friend. Federal form 1040ez She later moved back into her house and lived there for 12 months until she sold it in August 2013. Federal form 1040ez 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. Federal form 1040ez Temporary absence. Federal form 1040ez   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. Federal form 1040ez The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Federal form 1040ez Example 1. Federal form 1040ez David Johnson, who is single, bought and moved into his home on February 1, 2011. Federal form 1040ez Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Federal form 1040ez David sold the house on March 1, 2013. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Example 2. Federal form 1040ez 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. Federal form 1040ez Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Federal form 1040ez He cannot exclude any part of his gain because he did not use the residence for the required 2 years. Federal form 1040ez Ownership and use tests met at different times. Federal form 1040ez   You can meet the ownership and use tests during different 2-year periods. Federal form 1040ez However, you must meet both tests during the 5-year period ending on the date of the sale. Federal form 1040ez Example. Federal form 1040ez Beginning in 2002, Helen Jones lived in a rented apartment. Federal form 1040ez The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Federal form 1040ez In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Federal form 1040ez On July 12, 2013, while still living in her daughter's home, she sold her condominium. Federal form 1040ez 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. Federal form 1040ez She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Federal form 1040ez She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Federal form 1040ez 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. Federal form 1040ez Cooperative apartment. Federal form 1040ez   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. Federal form 1040ez Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Federal form 1040ez Exception for individuals with a disability. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez   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. Federal form 1040ez Previous home destroyed or condemned. Federal form 1040ez   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. Federal form 1040ez 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). Federal form 1040ez 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. Federal form 1040ez Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez   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. Federal form 1040ez Example. Federal form 1040ez John bought and moved into a home in 2005. Federal form 1040ez He lived in it as his main home for 2½ years. Federal form 1040ez For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Federal form 1040ez He then sold the home at a gain in 2013. Federal form 1040ez 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. Federal form 1040ez This means he can disregard those 6 years. Federal form 1040ez Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. Federal form 1040ez He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Federal form 1040ez Period of suspension. Federal form 1040ez   The period of suspension cannot last more than 10 years. Federal form 1040ez Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. Federal form 1040ez You cannot suspend the 5-year period for more than one property at a time. Federal form 1040ez You can revoke your choice to suspend the 5-year period at any time. Federal form 1040ez Example. Federal form 1040ez Mary bought a home on April 1, 1997. Federal form 1040ez She used it as her main home until August 31, 2000. Federal form 1040ez On September 1, 2000, she went on qualified official extended duty with the Navy. Federal form 1040ez She did not live in the house again before selling it on July 31, 2013. Federal form 1040ez Mary chooses to use the entire 10-year suspension period. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. Federal form 1040ez Uniformed services. Federal form 1040ez   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. Federal form 1040ez Foreign Service member. Federal form 1040ez   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. Federal form 1040ez A Chief of mission. Federal form 1040ez An Ambassador at large. Federal form 1040ez A member of the Senior Foreign Service. Federal form 1040ez A Foreign Service officer. Federal form 1040ez Part of the Foreign Service personnel. Federal form 1040ez Employee of the intelligence community. Federal form 1040ez   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. Federal form 1040ez The Office of the Director of National Intelligence. Federal form 1040ez The Central Intelligence Agency. Federal form 1040ez The National Security Agency. Federal form 1040ez The Defense Intelligence Agency. Federal form 1040ez The National Geospatial-Intelligence Agency. Federal form 1040ez The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. Federal form 1040ez 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. Federal form 1040ez The Bureau of Intelligence and Research of the Department of State. Federal form 1040ez Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. Federal form 1040ez Qualified official extended duty. Federal form 1040ez   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. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez (But see Special rules for joint returns, next. Federal form 1040ez ) Special rules for joint returns. Federal form 1040ez   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Federal form 1040ez You are married and file a joint return for the year. Federal form 1040ez Either you or your spouse meets the ownership test. Federal form 1040ez Both you and your spouse meet the use test. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Federal form 1040ez Example 1—one spouse sells a home. Federal form 1040ez Emily sells her home in June 2013 for a gain of $300,000. Federal form 1040ez She marries Jamie later in the year. Federal form 1040ez She meets the ownership and use tests, but Jamie does not. Federal form 1040ez Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Federal form 1040ez The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Federal form 1040ez Example 2—each spouse sells a home. Federal form 1040ez 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. Federal form 1040ez He meets the ownership and use tests on his home, but Emily does not. Federal form 1040ez Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Federal form 1040ez However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Federal form 1040ez Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Federal form 1040ez 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. Federal form 1040ez Sale of main home by surviving spouse. Federal form 1040ez   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. Federal form 1040ez   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. Federal form 1040ez The sale or exchange took place after 2008. Federal form 1040ez The sale or exchange took place no more than 2 years after the date of death of your spouse. Federal form 1040ez You have not remarried. Federal form 1040ez You and your spouse met the use test at the time of your spouse's death. Federal form 1040ez You or your spouse met the ownership test at the time of your spouse's death. Federal form 1040ez Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. Federal form 1040ez The ownership and use tests were described earlier. Federal form 1040ez Example. Federal form 1040ez Harry owned and used a house as his main home since 2009. Federal form 1040ez Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. Federal form 1040ez Harry died on August 15, 2013, and Wilma inherited the property. Federal form 1040ez Wilma sold the property on September 1, 2013, at which time she had not remarried. Federal form 1040ez 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. Federal form 1040ez Home transferred from spouse. Federal form 1040ez   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. Federal form 1040ez Use of home after divorce. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Federal form 1040ez A change in place of employment. Federal form 1040ez Health. Federal form 1040ez Unforeseen circumstances. Federal form 1040ez Qualified individual. Federal form 1040ez   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. Federal form 1040ez You. Federal form 1040ez Your spouse. Federal form 1040ez A co-owner of the home. Federal form 1040ez A person whose main home is the same as yours. Federal form 1040ez Primary reason for sale. Federal form 1040ez   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. Federal form 1040ez You qualify under a “safe harbor. Federal form 1040ez ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. Federal form 1040ez Safe harbors corresponding to the reasons listed above are described later. Federal form 1040ez 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. Federal form 1040ez  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. Federal form 1040ez 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. Federal form 1040ez Employment. Federal form 1040ez   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. Federal form 1040ez It also includes the start or continuation of self-employment. Federal form 1040ez Distance safe harbor. Federal form 1040ez   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). Federal form 1040ez Example. Federal form 1040ez Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. Federal form 1040ez He got a job in North Carolina and sold his townhouse in 2013. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. Federal form 1040ez 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. Federal form 1040ez Parent, grandparent, stepmother, stepfather. Federal form 1040ez Child, grandchild, stepchild, adopted child, eligible foster child. Federal form 1040ez Brother, sister, stepbrother, stepsister, half-brother, half-sister. Federal form 1040ez Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Federal form 1040ez Uncle, aunt, nephew, niece, or cousin. Federal form 1040ez Example. Federal form 1040ez In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. Federal form 1040ez Lauren's father has a chronic disease and is unable to care for himself. Federal form 1040ez In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. Federal form 1040ez 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. Federal form 1040ez Doctor's recommendation safe harbor. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Specific event safe harbors. Federal form 1040ez   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. Federal form 1040ez An involuntary conversion of your home, such as when your home is destroyed or condemned. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. Federal form 1040ez For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. Federal form 1040ez Reasonable basic living expenses. Federal form 1040ez   Reasonable basic living expenses for your household include the following. Federal form 1040ez Amounts spent for food. Federal form 1040ez Amounts spent for clothing. Federal form 1040ez Housing and related expenses. Federal form 1040ez Medical expenses. Federal form 1040ez Transportation expenses. Federal form 1040ez Tax payments. Federal form 1040ez Court-ordered payments. Federal form 1040ez Expenses reasonably necessary to produce income. Federal form 1040ez   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. Federal form 1040ez 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. Federal form 1040ez 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). Federal form 1040ez Exceptions. Federal form 1040ez   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. Federal form 1040ez Calculation. Federal form 1040ez   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. Federal form 1040ez   For examples of this calculation, see Business Use or Rental of Home , next. Federal form 1040ez 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. Federal form 1040ez Example 1. Federal form 1040ez On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Federal form 1040ez 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. Federal form 1040ez The house was rented from June 1, 2009, to March 31, 2011. Federal form 1040ez Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez Example 2. Federal form 1040ez William owned and used a house as his main home from 2007 through 2010. Federal form 1040ez On January 1, 2011, he moved to another state. Federal form 1040ez He rented his house from that date until April 30, 2013, when he sold it. Federal form 1040ez 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. Federal form 1040ez Because it was rental property at the time of the sale, he must report the sale on Form 4797. Federal form 1040ez 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. Federal form 1040ez Because he met the ownership and use tests, he can exclude gain up to $250,000. Federal form 1040ez 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. Federal form 1040ez Depreciation after May 6, 1997. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez Unrecaptured section 1250 gain. Federal form 1040ez   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. Federal form 1040ez 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. Federal form 1040ez Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. Federal form 1040ez Worksheet 2. Federal form 1040ez Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. Federal form 1040ez Gain or (Loss) on Sale       1. Federal form 1040ez   Selling price of home 1. Federal form 1040ez     2. Federal form 1040ez   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. Federal form 1040ez     3. Federal form 1040ez   Subtract line 2 from line 1. Federal form 1040ez This is the amount realized 3. Federal form 1040ez     4. Federal form 1040ez   Adjusted basis of home sold (from Worksheet 1, line 13) 4. Federal form 1040ez     5. Federal form 1040ez   Gain or (loss) on the sale. Federal form 1040ez Subtract line 4 from line 3. Federal form 1040ez If this is a loss, stop here 5. Federal form 1040ez 200,000   Part 2. Federal form 1040ez Exclusion and Taxable Gain       6. Federal form 1040ez   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. Federal form 1040ez If none, enter -0- 6. Federal form 1040ez 10,000   7. Federal form 1040ez   Subtract line 6 from line 5. Federal form 1040ez If the result is less than zero, enter -0- 7. Federal form 1040ez 190,000   8. Federal form 1040ez   Aggregate number of days of nonqualified use after 2008. Federal form 1040ez If none, enter -0-. Federal form 1040ez  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. Federal form 1040ez 668   9. Federal form 1040ez   Number of days taxpayer owned the property 9. Federal form 1040ez 2,080   10. Federal form 1040ez   Divide the amount on line 8 by the amount on line 9. Federal form 1040ez Enter the result as a decimal (rounded to at least 3 places). Federal form 1040ez But do not enter an amount greater than 1. Federal form 1040ez 00 10. Federal form 1040ez 0. Federal form 1040ez 321   11. Federal form 1040ez   Gain allocated to nonqualified use. Federal form 1040ez (Line 7 multiplied by line 10) 11. Federal form 1040ez 60,990   12. Federal form 1040ez   Gain eligible for exclusion. Federal form 1040ez Subtract line 11 from line 7 12. Federal form 1040ez 129,010   13. Federal form 1040ez   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). Federal form 1040ez  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. Federal form 1040ez If you do  not qualify to exclude gain, enter -0- 13. Federal form 1040ez 250,000   14. Federal form 1040ez   Exclusion. Federal form 1040ez Enter the smaller of line 12 or line 13 14. Federal form 1040ez 129,010   15. Federal form 1040ez   Taxable gain. Federal form 1040ez Subtract line 14 from line 5. Federal form 1040ez Report your taxable gain as described under Reporting the Sale . Federal form 1040ez If the amount on line 6 is more than zero, complete line 16 15. Federal form 1040ez 70,990   16. Federal form 1040ez   Enter the smaller of line 6 or line 15. Federal form 1040ez Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. Federal form 1040ez 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. Federal form 1040ez 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. Federal form 1040ez In addition, you do not need to report the sale of the business or rental part on Form 4797. Federal form 1040ez This is true whether or not you were entitled to claim any depreciation. Federal form 1040ez However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. Federal form 1040ez See Depreciation after May 6, 1997, earlier. Federal form 1040ez Example 1. Federal form 1040ez Ray sold his main home in 2013 at a $30,000 gain. Federal form 1040ez He has no gains or losses from the sale of property other than the gain from the sale of his home. Federal form 1040ez He meets the ownership and use tests to exclude the gain from his income. Federal form 1040ez However, he used part of the home as a business office in 2012 and claimed $500 depreciation. Federal form 1040ez 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. Federal form 1040ez In addition, he does not have to report any part of the gain on Form 4797. Federal form 1040ez Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. Federal form 1040ez He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). Federal form 1040ez Example 2. Federal form 1040ez 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. Federal form 1040ez Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. Federal form 1040ez 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. Federal form 1040ez Examples are: A working farm on which your house was located, A duplex in w
Print - Click this link to Print this page

Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is your voice at the IRS. Our job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. We offer free help to guide you through the often-confusing process of resolving your tax problems that you haven’t been able to solve on your own. Remember, the worst thing you can do is nothing at all!
 

ALERT: Beware of Phishing Scam Mentioning TAS
Emails claiming to be from Taxpayer Advocate Service are bogus. Don’t click on links and please report emails to the IRS.

IRS Seeks Volunteers for Taxpayer Advocacy Panel
The IRS seeks civic-minded volunteers to serve on the Taxpayer Advocacy Panel (TAP), a federal advisory committee that listens to taxpayers, identifies major taxpayer concerns, and makes recommendations for improving IRS services. Deadline is April 11.

 About TAS

 

 Get Help

   

 News and Information

 

 Connect With Us

 

 

Page Last Reviewed or Updated: 27-Mar-2014

The Federal Form 1040ez

Federal form 1040ez 2. Federal form 1040ez   Simplified Employee Pensions (SEPs) Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Setting Up a SEPWhen not to use Form 5305-SEP. Federal form 1040ez How Much Can I Contribute?Contribution Limits Deducting ContributionsDeduction Limit for Contributions for Participants Deduction Limit for Self-Employed Individuals Carryover of Excess SEP Contributions When To Deduct Contributions Where To Deduct Contributions Salary Reduction Simplified Employee Pensions (SARSEPs)SARSEP ADP test. Federal form 1040ez Deferral percentage. Federal form 1040ez Employee compensation. Federal form 1040ez Compensation of self-employed individuals. Federal form 1040ez Choice not to treat deferrals as compensation. Federal form 1040ez Limit on Elective Deferrals Tax Treatment of Deferrals Distributions (Withdrawals) Additional TaxesEffects on employee. Federal form 1040ez Reporting and Disclosure Requirements Topics - This chapter discusses: Setting up a SEP How much can I contribute Deducting contributions Salary reduction simplified employee pensions (SARSEPs) Distributions (withdrawals) Additional taxes Reporting and disclosure requirements Useful Items - You may want to see: Publication 590 Individual Retirement Arrangements (IRAs) 3998 Choosing A Retirement Solution for Your Small Business 4285 SEP Checklist 4286 SARSEP Checklist 4333 SEP Retirement Plans for Small Businesses 4336 SARSEP for Small Businesses 4407 SARSEP—Key Issues and Assistance Forms (and Instructions) W-2 Wage and Tax Statement 1040 U. Federal form 1040ez S. Federal form 1040ez Individual Income Tax Return 5305-SEP Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 5305A-SEP Salary Reduction Simplified Employee Pension—Individual Retirement Accounts Contribution Agreement 8880 Credit for Qualified Retirement Savings Contributions 8881 Credit for Small Employer Pension Plan Startup Costs A SEP is a written plan that allows you to make contributions toward your own retirement and your employees' retirement without getting involved in a more complex qualified plan. Federal form 1040ez Under a SEP, you make contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. Federal form 1040ez A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. Federal form 1040ez SEP-IRAs are set up for, at a minimum, each eligible employee (defined below). Federal form 1040ez A SEP-IRA may have to be set up for a leased employee (defined in chapter 1), but does not need to be set up for excludable employees (defined later). Federal form 1040ez Eligible employee. Federal form 1040ez   An eligible employee is an individual who meets all the following requirements. Federal form 1040ez Has reached age 21. Federal form 1040ez Has worked for you in at least 3 of the last 5 years. Federal form 1040ez Has received at least $550 in compensation from you in 2013. Federal form 1040ez This amount remains the same in 2014. Federal form 1040ez    You can use less restrictive participation requirements than those listed, but not more restrictive ones. Federal form 1040ez Excludable employees. Federal form 1040ez   The following employees can be excluded from coverage under a SEP. Federal form 1040ez Employees covered by a union agreement and whose retirement benefits were bargained for in good faith by the employees' union and you. Federal form 1040ez Nonresident alien employees who have received no U. Federal form 1040ez S. Federal form 1040ez source wages, salaries, or other personal services compensation from you. Federal form 1040ez For more information about nonresident aliens, see Publication 519, U. Federal form 1040ez S. Federal form 1040ez Tax Guide for Aliens. Federal form 1040ez Setting Up a SEP There are three basic steps in setting up a SEP. Federal form 1040ez You must execute a formal written agreement to provide benefits to all eligible employees. Federal form 1040ez You must give each eligible employee certain information about the SEP. Federal form 1040ez A SEP-IRA must be set up by or for each eligible employee. Federal form 1040ez Many financial institutions will help you set up a SEP. Federal form 1040ez Formal written agreement. Federal form 1040ez   You must execute a formal written agreement to provide benefits to all eligible employees under a SEP. Federal form 1040ez You can satisfy the written agreement requirement by adopting an IRS model SEP using Form 5305-SEP. Federal form 1040ez However, see When not to use Form 5305-SEP, below. Federal form 1040ez   If you adopt an IRS model SEP using Form 5305-SEP, no prior IRS approval or determination letter is required. Federal form 1040ez Keep the original form. Federal form 1040ez Do not file it with the IRS. Federal form 1040ez Also, using Form 5305-SEP will usually relieve you from filing annual retirement plan information returns with the IRS and the Department of Labor. Federal form 1040ez See the Form 5305-SEP instructions for details. Federal form 1040ez If you choose not to use Form 5305-SEP, you should seek professional advice in adopting a SEP. Federal form 1040ez When not to use Form 5305-SEP. Federal form 1040ez   You cannot use Form 5305-SEP if any of the following apply. Federal form 1040ez You currently maintain any other qualified retirement plan other than another SEP. Federal form 1040ez You have any eligible employees for whom IRAs have not been set up. Federal form 1040ez You use the services of leased employees, who are not your common-law employees (as described in chapter 1). Federal form 1040ez You are a member of any of the following unless all eligible employees of all the members of these groups, trades, or businesses participate under the SEP. Federal form 1040ez An affiliated service group described in section 414(m). Federal form 1040ez A controlled group of corporations described in section 414(b). Federal form 1040ez Trades or businesses under common control described in section 414(c). Federal form 1040ez You do not pay the cost of the SEP contributions. Federal form 1040ez Information you must give to employees. Federal form 1040ez   You must give each eligible employee a copy of Form 5305-SEP, its instructions, and the other information listed in the Form 5305-SEP instructions. Federal form 1040ez An IRS model SEP is not considered adopted until you give each employee this information. Federal form 1040ez Setting up the employee's SEP-IRA. Federal form 1040ez   A SEP-IRA must be set up by or for each eligible employee. Federal form 1040ez SEP-IRAs can be set up with banks, insurance companies, or other qualified financial institutions. Federal form 1040ez You send SEP contributions to the financial institution where the SEP-IRA is maintained. Federal form 1040ez Deadline for setting up a SEP. Federal form 1040ez   You can set up a SEP for any year as late as the due date (including extensions) of your income tax return for that year. Federal form 1040ez Credit for startup costs. Federal form 1040ez   You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SEP that first became effective in 2013. Federal form 1040ez For more information, see Credit for startup costs under Reminders, earlier. Federal form 1040ez How Much Can I Contribute? The SEP rules permit you to contribute a limited amount of money each year to each employee's SEP-IRA. Federal form 1040ez If you are self-employed, you can contribute to your own SEP-IRA. Federal form 1040ez Contributions must be in the form of money (cash, check, or money order). Federal form 1040ez You cannot contribute property. Federal form 1040ez However, participants may be able to transfer or roll over certain property from one retirement plan to another. Federal form 1040ez See Publication 590 for more information about rollovers. Federal form 1040ez You do not have to make contributions every year. Federal form 1040ez But if you make contributions, they must be based on a written allocation formula and must not discriminate in favor of highly compensated employees (defined in chapter 1). Federal form 1040ez When you contribute, you must contribute to the SEP-IRAs of all participants who actually performed personal services during the year for which the contributions are made, including employees who die or terminate employment before the contributions are made. Federal form 1040ez Contributions are deductible within limits, as discussed later, and generally are not taxable to the plan participants. Federal form 1040ez A SEP-IRA cannot be a Roth IRA. Federal form 1040ez Employer contributions to a SEP-IRA will not affect the amount an individual can contribute to a Roth or traditional IRA. Federal form 1040ez Unlike regular contributions to a traditional IRA, contributions under a SEP can be made to participants over age 70½. Federal form 1040ez If you are self-employed, you can also make contributions under the SEP for yourself even if you are over 70½. Federal form 1040ez Participants age 70½ or over must take required minimum distributions. Federal form 1040ez Time limit for making contributions. Federal form 1040ez   To deduct contributions for a year, you must make the contributions by the due date (including extensions) of your tax return for the year. Federal form 1040ez Contribution Limits Contributions you make for 2013 to a common-law employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000. Federal form 1040ez Compensation generally does not include your contributions to the SEP. Federal form 1040ez The SEP plan document will specify how the employer contribution is determined and how it will be allocated to participants. Federal form 1040ez Example. Federal form 1040ez Your employee, Mary Plant, earned $21,000 for 2013. Federal form 1040ez The maximum contribution you can make to her SEP-IRA is $5,250 (25% x $21,000). Federal form 1040ez Contributions for yourself. Federal form 1040ez   The annual limits on your contributions to a common-law employee's SEP-IRA also apply to contributions you make to your own SEP-IRA. Federal form 1040ez However, special rules apply when figuring your maximum deductible contribution. Federal form 1040ez See Deduction Limit for Self-Employed Individuals , later. Federal form 1040ez Annual compensation limit. Federal form 1040ez   You cannot consider the part of an employee's compensation over $255,000 when figuring your contribution limit for that employee. Federal form 1040ez However, $51,000 is the maximum contribution for an eligible employee. Federal form 1040ez These limits are $260,000 and $52,000, respectively, in 2014. Federal form 1040ez Example. Federal form 1040ez Your employee, Susan Green, earned $210,000 for 2013. Federal form 1040ez Because of the maximum contribution limit for 2013, you can only contribute $51,000 to her SEP-IRA. Federal form 1040ez More than one plan. Federal form 1040ez   If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $51,000 or 100% of the participant's compensation. Federal form 1040ez When you figure this limit, you must add your contributions to all defined contribution plans maintained by you. Federal form 1040ez Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans you maintain. Federal form 1040ez Tax treatment of excess contributions. Federal form 1040ez   Excess contributions are your contributions to an employee's SEP-IRA (or to your own SEP-IRA) for 2013 that exceed the lesser of the following amounts. Federal form 1040ez 25% of the employee's compensation (or, for you, 20% of your net earnings from self-employment). Federal form 1040ez $51,000. Federal form 1040ez Excess contributions are included in the employee's income for the year and are treated as contributions by the employee to his or her SEP-IRA. Federal form 1040ez For more information on employee tax treatment of excess contributions, see chapter 1 in Publication 590. Federal form 1040ez Reporting on Form W-2. Federal form 1040ez   Do not include SEP contributions on your employee's Form W-2 unless contributions were made under a salary reduction arrangement (discussed later). Federal form 1040ez Deducting Contributions Generally, you can deduct the contributions you make each year to each employee's SEP-IRA. Federal form 1040ez If you are self-employed, you can deduct the contributions you make each year to your own SEP-IRA. Federal form 1040ez Deduction Limit for Contributions for Participants The most you can deduct for your contributions to you or your employee's SEP-IRA is the lesser of the following amounts. Federal form 1040ez Your contributions (including any excess contributions carryover). Federal form 1040ez 25% of the compensation (limited to $255,000 per participant) paid to the participants during 2013 from the business that has the plan, not to exceed $51,000 per participant. Federal form 1040ez In 2014, the amounts in (2) above are $260,000 and $52,000, respectively. Federal form 1040ez Deduction Limit for Self-Employed Individuals If you contribute to your own SEP-IRA, you must make a special computation to figure your maximum deduction for these contributions. Federal form 1040ez When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment (defined in chapter 1), which takes into account both the following deductions. Federal form 1040ez The deduction for the deductible part of your self-employment tax. Federal form 1040ez The deduction for contributions to your own SEP-IRA. Federal form 1040ez The deduction for contributions to your own SEP-IRA and your net earnings depend on each other. Federal form 1040ez For this reason, you determine the deduction for contributions to your own SEP-IRA indirectly by reducing the contribution rate called for in your plan. Federal form 1040ez To do this, use the Rate Table for Self-Employed or the Rate Worksheet for Self-Employed, whichever is appropriate for your plan's contribution rate, in chapter 5. Federal form 1040ez Then figure your maximum deduction by using the Deduction Worksheet for Self-Employed in chapter 5. Federal form 1040ez Carryover of Excess SEP Contributions If you made SEP contributions that are more than the deduction limit (nondeductible contributions), you can carry over and deduct the difference in later years. Federal form 1040ez However, the carryover, when combined with the contribution for the later year, is subject to the deduction limit for that year. Federal form 1040ez If you also contributed to a defined benefit plan or defined contribution plan, see Carryover of Excess Contributions under Employer Deduction in chapter 4 for the carryover limit. Federal form 1040ez Excise tax. Federal form 1040ez   If you made nondeductible (excess) contributions to a SEP, you may be subject to a 10% excise tax. Federal form 1040ez For information about the excise tax, see Excise Tax for Nondeductible (Excess) Contributions under Employer Deduction in chapter 4. Federal form 1040ez When To Deduct Contributions When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. Federal form 1040ez If the SEP is maintained on a calendar year basis, you deduct the yearly contributions on your tax return for the year within which the calendar year ends. Federal form 1040ez If you file your tax return and maintain the SEP using a fiscal year or short tax year, you deduct contributions made for a year on your tax return for that year. Federal form 1040ez Example. Federal form 1040ez You are a fiscal year taxpayer whose tax year ends June 30. Federal form 1040ez You maintain a SEP on a calendar year basis. Federal form 1040ez You deduct SEP contributions made for calendar year 2013 on your tax return for your tax year ending June 30, 2014. Federal form 1040ez Where To Deduct Contributions Deduct the contributions you make for your common-law employees on your tax return. Federal form 1040ez For example, sole proprietors deduct them on Schedule C (Form 1040) or Schedule F (Form 1040), Profit or Loss From Farming; partnerships deduct them on Form 1065, U. Federal form 1040ez S. Federal form 1040ez Return of Partnership Income; and corporations deduct them on Form 1120, U. Federal form 1040ez S. Federal form 1040ez Corporation Income Tax Return, or Form 1120S, U. Federal form 1040ez S. Federal form 1040ez Income Tax Return for an S Corporation. Federal form 1040ez Sole proprietors and partners deduct contributions for themselves on line 28 of Form 1040. Federal form 1040ez (If you are a partner, contributions for yourself are shown on the Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Federal form 1040ez , you receive from the partnership. Federal form 1040ez ) Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees. Federal form 1040ez Salary Reduction Simplified Employee Pensions (SARSEPs) A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. Federal form 1040ez (See the Caution, next. Federal form 1040ez ) Under a SARSEP, your employees can choose to have you contribute part of their pay to their SEP-IRAs rather than receive it in cash. Federal form 1040ez This contribution is called an “elective deferral” because employees choose (elect) to set aside the money, and they defer the tax on the money until it is distributed to them. Federal form 1040ez You are not allowed to set up a SARSEP after 1996. Federal form 1040ez However, participants (including employees hired after 1996) in a SARSEP set up before 1997 can continue to have you contribute part of their pay to the plan. Federal form 1040ez If you are interested in setting up a retirement plan that includes a salary reduction arrangement, see chapter 3. Federal form 1040ez Who can have a SARSEP?   A SARSEP set up before 1997 is available to you and your eligible employees only if all the following requirements are met. Federal form 1040ez At least 50% of your employees eligible to participate choose to make elective deferrals. Federal form 1040ez You have 25 or fewer employees who were eligible to participate in the SEP at any time during the preceding year. Federal form 1040ez The elective deferrals of your highly compensated employees meet the SARSEP ADP test. Federal form 1040ez SARSEP ADP test. Federal form 1040ez   Under the SARSEP ADP test, the amount deferred each year by each eligible highly compensated employee as a percentage of pay (the deferral percentage) cannot be more than 125% of the average deferral percentage (ADP) of all non-highly compensated employees eligible to participate. Federal form 1040ez A highly compensated employee is defined in chapter 1. Federal form 1040ez Deferral percentage. Federal form 1040ez   The deferral percentage for an employee for a year is figured as follows. Federal form 1040ez   The elective employer contributions (excluding certain catch-up contributions)  paid to the SEP for the employee for the year     The employee's compensation (limited to $255,000 in 2013)   The instructions for Form 5305A-SEP have a worksheet you can use to determine whether the elective deferrals of your highly compensated employees meet the SARSEP ADP test. Federal form 1040ez Employee compensation. Federal form 1040ez   For figuring the deferral percentage, compensation is generally the amount you pay to the employee for the year. Federal form 1040ez Compensation includes the elective deferral and other amounts deferred in certain employee benefit plans. Federal form 1040ez See Compensation in chapter 1. Federal form 1040ez Elective deferrals under the SARSEP are included in figuring your employees' deferral percentage even though they are not included in the income of your employees for income tax purposes. Federal form 1040ez Compensation of self-employed individuals. Federal form 1040ez   If you are self-employed, compensation is your net earnings from self-employment as defined in chapter 1. Federal form 1040ez   Compensation does not include tax-free items (or deductions related to them) other than foreign earned income and housing cost amounts. Federal form 1040ez Choice not to treat deferrals as compensation. Federal form 1040ez   You can choose not to treat elective deferrals (and other amounts deferred in certain employee benefit plans) for a year as compensation under your SARSEP. Federal form 1040ez Limit on Elective Deferrals The most a participant can choose to defer for calendar year 2013 is the lesser of the following amounts. Federal form 1040ez 25% of the participant's compensation (limited to $255,000 of the participant's compensation). Federal form 1040ez $17,500. Federal form 1040ez The $17,500 limit applies to the total elective deferrals the employee makes for the year to a SEP and any of the following. Federal form 1040ez Cash or deferred arrangement (section 401(k) plan). Federal form 1040ez Salary reduction arrangement under a tax-sheltered annuity plan (section 403(b) plan). Federal form 1040ez SIMPLE IRA plan. Federal form 1040ez In 2014, the $255,000 limit increases to $260,000 and the $17,500 limit remains at $17,500. Federal form 1040ez Catch-up contributions. Federal form 1040ez   A SARSEP can permit participants who are age 50 or over at the end of the calendar year to also make catch-up contributions. Federal form 1040ez The catch-up contribution limit for 2013 is $5,500 and remains at $5,500 for 2014. Federal form 1040ez Elective deferrals are not treated as catch-up contributions for 2013 until they exceed the elective deferral limit (the lesser of 25% of compensation or $17,500), the SARSEP ADP test limit discussed earlier, or the plan limit (if any). Federal form 1040ez However, the catch-up contribution a participant can make for a year cannot exceed the lesser of the following amounts. Federal form 1040ez The catch-up contribution limit. Federal form 1040ez The excess of the participant's compensation over the elective deferrals that are not catch-up contributions. Federal form 1040ez   Catch-up contributions are not subject to the elective deferral limit (the lesser of 25% of compensation or $17,500 in 2013 and in 2014). Federal form 1040ez Overall limit on SEP contributions. Federal form 1040ez   If you also make nonelective contributions to a SEP-IRA, the total of the nonelective and elective contributions to that SEP-IRA cannot exceed the lesser of 25% of the employee's compensation or $51,000 for 2013 ($52,000 for 2014). Federal form 1040ez The same rule applies to contributions you make to your own SEP-IRA. Federal form 1040ez See Contribution Limits , earlier. Federal form 1040ez Figuring the elective deferral. Federal form 1040ez   For figuring the 25% limit on elective deferrals, compensation does not include SEP contributions, including elective deferrals or other amounts deferred in certain employee benefit plans. Federal form 1040ez Tax Treatment of Deferrals Elective deferrals that are not more than the limits discussed earlier under Limit on Elective Deferrals are excluded from your employees' wages subject to federal income tax in the year of deferral. Federal form 1040ez However, these deferrals are included in wages for social security, Medicare, and federal unemployment (FUTA) tax. Federal form 1040ez Excess deferrals. Federal form 1040ez   For 2013, excess deferrals are the elective deferrals for the year that are more than the $17,500 limit discussed earlier. Federal form 1040ez For a participant who is eligible to make catch-up contributions, excess deferrals are the elective deferrals that are more than $23,000. Federal form 1040ez The treatment of excess deferrals made under a SARSEP is similar to the treatment of excess deferrals made under a qualified plan. Federal form 1040ez See Treatment of Excess Deferrals under Elective Deferrals (401(k) Plans) in chapter 4. Federal form 1040ez Excess SEP contributions. Federal form 1040ez   Excess SEP contributions are elective deferrals of highly compensated employees that are more than the amount permitted under the SARSEP ADP test. Federal form 1040ez You must notify your highly compensated employees within 2½ months after the end of the plan year of their excess SEP contributions. Federal form 1040ez If you do not notify them within this time period, you must pay a 10% tax on the excess. Federal form 1040ez For an explanation of the notification requirements, see Rev. Federal form 1040ez Proc. Federal form 1040ez 91-44, 1991-2 C. Federal form 1040ez B. Federal form 1040ez 733. Federal form 1040ez If you adopted a SARSEP using Form 5305A-SEP, the notification requirements are explained in the instructions for that form. Federal form 1040ez Reporting on Form W-2. Federal form 1040ez   Do not include elective deferrals in the “Wages, tips, other compensation” box of Form W-2. Federal form 1040ez You must, however, include them in the “Social security wages” and “Medicare wages and tips” boxes. Federal form 1040ez You must also include them in box 12. Federal form 1040ez Mark the “Retirement plan” checkbox in box 13. Federal form 1040ez For more information, see the Form W-2 instructions. Federal form 1040ez Distributions (Withdrawals) As an employer, you cannot prohibit distributions from a SEP-IRA. Federal form 1040ez Also, you cannot make your contributions on the condition that any part of them must be kept in the account after you have made your contributions to the employee's accounts. Federal form 1040ez Distributions are subject to IRA rules. Federal form 1040ez Generally, you or your employee must begin to receive distributions from a SEP-IRA by April 1 of the first year after the calendar year in which you or your employee reaches age 70½. Federal form 1040ez For more information about IRA rules, including the tax treatment of distributions, rollovers, required distributions, and income tax withholding, see Publication 590. Federal form 1040ez Additional Taxes The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for all the following actions. Federal form 1040ez Making excess contributions. Federal form 1040ez Making early withdrawals. Federal form 1040ez Not making required withdrawals. Federal form 1040ez For information about these taxes, see chapter 1 in Publication 590. Federal form 1040ez Also, a SEP-IRA may be disqualified, or an excise tax may apply, if the account is involved in a prohibited transaction, discussed next. Federal form 1040ez Prohibited transaction. Federal form 1040ez   If an employee improperly uses his or her SEP-IRA, such as by borrowing money from it, the employee has engaged in a prohibited transaction. Federal form 1040ez In that case, the SEP-IRA will no longer qualify as an IRA. Federal form 1040ez For a list of prohibited transactions, see Prohibited Transactions in chapter 4. Federal form 1040ez Effects on employee. Federal form 1040ez   If a SEP-IRA is disqualified because of a prohibited transaction, the assets in the account will be treated as having been distributed to the employee on the first day of the year in which the transaction occurred. Federal form 1040ez The employee must include in income the fair market value of the assets (on the first day of the year) that is more than any cost basis in the account. Federal form 1040ez Also, the employee may have to pay the additional tax for making early withdrawals. Federal form 1040ez Reporting and Disclosure Requirements If you set up a SEP using Form 5305-SEP, you must give your eligible employees certain information about the SEP when you set it up. Federal form 1040ez See Setting Up a SEP , earlier. Federal form 1040ez Also, you must give your eligible employees a statement each year showing any contributions to their SEP-IRAs. Federal form 1040ez You must also give them notice of any excess contributions. Federal form 1040ez For details about other information you must give them, see the instructions for Form 5305-SEP or Form 5305A-SEP (for a salary reduction SEP). Federal form 1040ez Even if you did not use Form 5305-SEP or Form 5305A-SEP to set up your SEP, you must give your employees information similar to that described above. Federal form 1040ez For more information, see the instructions for either Form 5305-SEP or Form 5305A-SEP. Federal form 1040ez Prev  Up  Next   Home   More Online Publications