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Free military turbotax Publication 15-B - Main Content Table of Contents 1. Free military turbotax Fringe Benefit OverviewAre Fringe Benefits Taxable? Cafeteria Plans Simple Cafeteria Plans 2. Free military turbotax Fringe Benefit Exclusion RulesAccident and Health Benefits Achievement Awards Adoption Assistance Athletic Facilities De Minimis (Minimal) Benefits Dependent Care Assistance Educational Assistance Employee Discounts Employee Stock Options Employer-Provided Cell Phones Group-Term Life Insurance Coverage Health Savings Accounts Lodging on Your Business Premises Meals Moving Expense Reimbursements No-Additional-Cost Services Retirement Planning Services Transportation (Commuting) Benefits Tuition Reduction Working Condition Benefits 3. Free military turbotax Fringe Benefit Valuation RulesGeneral Valuation Rule Cents-Per-Mile Rule Commuting Rule Lease Value Rule Unsafe Conditions Commuting Rule 4. Free military turbotax Rules for Withholding, Depositing, and ReportingTransfer of property. Free military turbotax Amount of deposit. Free military turbotax Limitation. Free military turbotax Conformity rules. Free military turbotax Election not to withhold income tax. Free military turbotax How To Get Tax Help 1. Free military turbotax Fringe Benefit Overview A fringe benefit is a form of pay for the performance of services. Free military turbotax For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work. Free military turbotax Performance of services. Free military turbotax   A person who performs services for you does not have to be your employee. Free military turbotax A person may perform services for you as an independent contractor, partner, or director. Free military turbotax Also, for fringe benefit purposes, treat a person who agrees not to perform services (such as under a covenant not to compete) as performing services. Free military turbotax Provider of benefit. Free military turbotax   You are the provider of a fringe benefit if it is provided for services performed for you. Free military turbotax You are considered the provider of a fringe benefit even if a third party, such as your client or customer, provides the benefit to your employee for services the employee performs for you. Free military turbotax For example, if, in exchange for goods or services, your customer provides day care services as a fringe benefit to your employees for services they provide for you as their employer, then you are the provider of this fringe benefit even though the customer is actually providing the day care. Free military turbotax Recipient of benefit. Free military turbotax   The person who performs services for you is considered the recipient of a fringe benefit provided for those services. Free military turbotax That person may be considered the recipient even if the benefit is provided to someone who did not perform services for you. Free military turbotax For example, your employee may be the recipient of a fringe benefit you provide to a member of the employee's family. Free military turbotax Are Fringe Benefits Taxable? Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it. Free military turbotax Section 2 discusses the exclusions that apply to certain fringe benefits. Free military turbotax Any benefit not excluded under the rules discussed in section 2 is taxable. Free military turbotax Including taxable benefits in pay. Free military turbotax   You must include in a recipient's pay the amount by which the value of a fringe benefit is more than the sum of the following amounts. Free military turbotax Any amount the law excludes from pay. Free military turbotax Any amount the recipient paid for the benefit. Free military turbotax The rules used to determine the value of a fringe benefit are discussed in section 3. Free military turbotax   If the recipient of a taxable fringe benefit is your employee, the benefit is subject to employment taxes and must be reported on Form W-2, Wage and Tax Statement. Free military turbotax However, you can use special rules to withhold, deposit, and report the employment taxes. Free military turbotax These rules are discussed in section 4. Free military turbotax   If the recipient of a taxable fringe benefit is not your employee, the benefit is not subject to employment taxes. Free military turbotax However, you may have to report the benefit on one of the following information returns. Free military turbotax If the recipient receives the benefit as: Use: An independent contractor Form 1099-MISC, Miscellaneous Income A partner Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Free military turbotax For more information, see the instructions for the forms listed above. Free military turbotax Cafeteria Plans A cafeteria plan, including a flexible spending arrangement, is a written plan that allows your employees to choose between receiving cash or taxable benefits instead of certain qualified benefits for which the law provides an exclusion from wages. Free military turbotax If an employee chooses to receive a qualified benefit under the plan, the fact that the employee could have received cash or a taxable benefit instead will not make the qualified benefit taxable. Free military turbotax Generally, a cafeteria plan does not include any plan that offers a benefit that defers pay. Free military turbotax However, a cafeteria plan can include a qualified 401(k) plan as a benefit. Free military turbotax Also, certain life insurance plans maintained by educational institutions can be offered as a benefit even though they defer pay. Free military turbotax Qualified benefits. Free military turbotax   A cafeteria plan can include the following benefits discussed in section 2. Free military turbotax Accident and health benefits (but not Archer medical savings accounts (Archer MSAs) or long-term care insurance). Free military turbotax Adoption assistance. Free military turbotax Dependent care assistance. Free military turbotax Group-term life insurance coverage (including costs that cannot be excluded from wages). Free military turbotax Health savings accounts (HSAs). Free military turbotax Distributions from an HSA may be used to pay eligible long-term care insurance premiums or qualified long-term care services. Free military turbotax Benefits not allowed. Free military turbotax   A cafeteria plan cannot include the following benefits discussed in section 2. Free military turbotax Archer MSAs. Free military turbotax See Accident and Health Benefits in section 2. Free military turbotax Athletic facilities. Free military turbotax De minimis (minimal) benefits. Free military turbotax Educational assistance. Free military turbotax Employee discounts. Free military turbotax Employer-provided cell phones. Free military turbotax Lodging on your business premises. Free military turbotax Meals. Free military turbotax Moving expense reimbursements. Free military turbotax No-additional-cost services. Free military turbotax Transportation (commuting) benefits. Free military turbotax Tuition reduction. Free military turbotax Working condition benefits. Free military turbotax It also cannot include scholarships or fellowships (discussed in Publication 970, Tax Benefits for Education). Free military turbotax $2,500 limit on a health flexible spending arrangement (FSA). Free military turbotax   For plan years beginning after December 31, 2012, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,500. Free military turbotax For plan years beginning after December 31, 2013, the limit is unchanged at $2,500. Free military turbotax   A cafeteria plan offering a health FSA must be amended to specify the $2,500 limit (or any lower limit set by the employer). Free military turbotax While cafeteria plans generally must be amended on a prospective basis, an amendment that is adopted on or before December 31, 2014, may be made effective retroactively, provided that in operation the cafeteria plan meets the limit for plan years beginning after December 31, 2012. Free military turbotax A cafeteria plan that does not limit health FSA contributions to the dollar limit is not a cafeteria plan and all benefits offered under the plan are includible in the employee's gross income. Free military turbotax   For more information, see Notice 2012-40, 2012-26 I. Free military turbotax R. Free military turbotax B. Free military turbotax 1046, available at www. Free military turbotax irs. Free military turbotax gov/irb/2012-26_IRB/ar09. Free military turbotax html. Free military turbotax Employee. Free military turbotax   For these plans, treat the following individuals as employees. Free military turbotax A current common-law employee. Free military turbotax See section 2 in Publication 15 (Circular E) for more information. Free military turbotax A full-time life insurance agent who is a current statutory employee. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax Exception for S corporation shareholders. Free military turbotax   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Free military turbotax A 2% shareholder for this purpose is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax Plans that favor highly compensated employees. Free military turbotax   If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. Free military turbotax A plan you maintain under a collective bargaining agreement does not favor highly compensated employees. Free military turbotax   A highly compensated employee for this purpose is any of the following employees. Free military turbotax An officer. Free military turbotax A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock. Free military turbotax An employee who is highly compensated based on the facts and circumstances. Free military turbotax A spouse or dependent of a person described in (1), (2), or (3). Free military turbotax Plans that favor key employees. Free military turbotax   If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. Free military turbotax A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. Free military turbotax However, a plan you maintain under a collective bargaining agreement does not favor key employees. Free military turbotax   A key employee during 2014 is generally an employee who is either of the following. Free military turbotax An officer having annual pay of more than $170,000. Free military turbotax An employee who for 2014 is either of the following. Free military turbotax A 5% owner of your business. Free military turbotax A 1% owner of your business whose annual pay was more than $150,000. Free military turbotax Simple Cafeteria Plans Eligible employers meeting contribution requirements and eligibility and participation requirements can establish a simple cafeteria plan. Free military turbotax Simple cafeteria plans are treated as meeting the nondiscrimination requirements of a cafeteria plan and certain benefits under a cafeteria plan. Free military turbotax Eligible employer. Free military turbotax   You are an eligible employer if you employ an average of 100 or fewer employees during either of the 2 preceding years. Free military turbotax If your business was not in existence throughout the preceding year, you are eligible if you reasonably expect to employ an average of 100 or fewer employees in the current year. Free military turbotax If you establish a simple cafeteria plan in a year that you employ an average of 100 or fewer employees, you are considered an eligible employer for any subsequent year as long as you do not employ an average of 200 or more employees in a subsequent year. Free military turbotax Eligibility and participation requirements. Free military turbotax   These requirements are met if all employees who had at least 1,000 hours of service for the preceding plan year are eligible to participate and each employee eligible to participate in the plan may elect any benefit available under the plan. Free military turbotax You may elect to exclude from the plan employees who: Are under age 21 before the close of the plan year, Have less than 1 year of service with you as of any day during the plan year, Are covered under a collective bargaining agreement, or Are nonresident aliens working outside the United States whose income did not come from a U. Free military turbotax S. Free military turbotax source. Free military turbotax Contribution requirements. Free military turbotax   You must make a contribution to provide qualified benefits on behalf of each qualified employee in an amount equal to: A uniform percentage (not less than 2%) of the employee’s compensation for the plan year, or An amount which is at least 6% of the employee’s compensation for the plan year or twice the amount of the salary reduction contributions of each qualified employee, whichever is less. Free military turbotax If the contribution requirements are met using option (2), the rate of contribution to any salary reduction contribution of a highly compensated or key employee can not be greater than the rate of contribution to any other employee. Free military turbotax More information. Free military turbotax   For more information about cafeteria plans, see section 125 of the Internal Revenue Code and its regulations. Free military turbotax 2. Free military turbotax Fringe Benefit Exclusion Rules This section discusses the exclusion rules that apply to fringe benefits. Free military turbotax These rules exclude all or part of the value of certain benefits from the recipient's pay. Free military turbotax The excluded benefits are not subject to federal income tax withholding. Free military turbotax Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2. Free military turbotax This section discusses the exclusion rules for the following fringe benefits. Free military turbotax Accident and health benefits. Free military turbotax Achievement awards. Free military turbotax Adoption assistance. Free military turbotax Athletic facilities. Free military turbotax De minimis (minimal) benefits. Free military turbotax Dependent care assistance. Free military turbotax Educational assistance. Free military turbotax Employee discounts. Free military turbotax Employee stock options. Free military turbotax Employer-provided cell phones. Free military turbotax Group-term life insurance coverage. Free military turbotax Health savings accounts (HSAs). Free military turbotax Lodging on your business premises. Free military turbotax Meals. Free military turbotax Moving expense reimbursements. Free military turbotax No-additional-cost services. Free military turbotax Retirement planning services. Free military turbotax Transportation (commuting) benefits. Free military turbotax Tuition reduction. Free military turbotax Working condition benefits. Free military turbotax See Table 2-1, later, for an overview of the employment tax treatment of these benefits. Free military turbotax Table 2-1. Free military turbotax Special Rules for Various Types of Fringe Benefits (For more information, see the full discussion in this section. Free military turbotax ) Treatment Under Employment Taxes Type of Fringe Benefit Income Tax Withholding Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000) Federal Unemployment (FUTA) Accident and health benefits Exempt1,2, except for long-term care benefits provided through a flexible spending or similar arrangement. Free military turbotax Exempt, except for certain payments to S corporation employees who are 2% shareholders. Free military turbotax Exempt Achievement awards Exempt1 up to $1,600 for qualified plan awards ($400 for nonqualified awards). Free military turbotax Adoption assistance Exempt1,3 Taxable Taxable Athletic facilities Exempt if substantially all use during the calendar year is by employees, their spouses, and their dependent children and the facility is operated by the employer on premises owned or leased by the employer. Free military turbotax De minimis (minimal) benefits Exempt Exempt Exempt Dependent care assistance Exempt3 up to certain limits, $5,000 ($2,500 for married employee filing separate return). Free military turbotax Educational assistance Exempt up to $5,250 of benefits each year. Free military turbotax (See Educational Assistance , later in this section. Free military turbotax ) Employee discounts Exempt3 up to certain limits. Free military turbotax (See Employee Discounts , later in this section. Free military turbotax ) Employee stock options See Employee Stock Options , later in this section. Free military turbotax Employer-provided cell phones Exempt if provided primarily for noncompensatory business purposes. Free military turbotax Group-term life insurance coverage Exempt Exempt1,4, 7 up to cost of $50,000 of coverage. Free military turbotax (Special rules apply to former employees. Free military turbotax ) Exempt Health savings accounts (HSAs) Exempt for qualified individuals up to the HSA contribution limits. Free military turbotax (See Health Savings Accounts , later in this section. Free military turbotax ) Lodging on your business premises Exempt1 if furnished for your convenience as a condition of employment. Free military turbotax Meals Exempt if furnished on your business premises for your convenience. Free military turbotax Exempt if de minimis. Free military turbotax Moving expense reimbursements Exempt1 if expenses would be deductible if the employee had paid them. Free military turbotax No-additional-cost services Exempt3 Exempt3 Exempt3 Retirement planning services Exempt5 Exempt5 Exempt5 Transportation (commuting) benefits Exempt1 up to certain limits if for rides in a commuter highway vehicle and/or transit passes ($130), qualified parking ($250), or qualified bicycle commuting reimbursement6 ($20). Free military turbotax (See Transportation (Commuting) Benefits , later in this section. Free military turbotax ) Exempt if de minimis. Free military turbotax Tuition reduction Exempt3 if for undergraduate education (or graduate education if the employee performs teaching or research activities). Free military turbotax Working condition benefits Exempt Exempt Exempt 1 Exemption does not apply to S corporation employees who are 2% shareholders. Free military turbotax 2 Exemption does not apply to certain highly compensated employees under a self-insured plan that favors those employees. Free military turbotax 3 Exemption does not apply to certain highly compensated employees under a program that favors those employees. Free military turbotax 4 Exemption does not apply to certain key employees under a plan that favors those employees. Free military turbotax 5 Exemption does not apply to services for tax preparation, accounting, legal, or brokerage services. Free military turbotax 6 If the employee receives a qualified bicycle commuting reimbursement in a qualified bicycle commuting month, the employee cannot receive commuter highway vehicle, transit pass, or qualified parking benefits in that same month. Free military turbotax 7 You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Free military turbotax Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Free military turbotax Also, show it in box 12 with code “C. Free military turbotax ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Free military turbotax Accident and Health Benefits This exclusion applies to contributions you make to an accident or health plan for an employee, including the following. Free military turbotax Contributions to the cost of accident or health insurance including qualified long-term care insurance. Free military turbotax Contributions to a separate trust or fund that directly or through insurance provides accident or health benefits. Free military turbotax Contributions to Archer MSAs or health savings accounts (discussed in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans). Free military turbotax This exclusion also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are either of the following. Free military turbotax Payments or reimbursements of medical expenses. Free military turbotax Payments for specific injuries or illnesses (such as the loss of the use of an arm or leg). Free military turbotax The payments must be figured without regard to any period of absence from work. Free military turbotax Accident or health plan. Free military turbotax   This is an arrangement that provides benefits for your employees, their spouses, their dependents, and their children (under age 27) in the event of personal injury or sickness. Free military turbotax The plan may be insured or noninsured and does not need to be in writing. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current common-law employee. Free military turbotax A full-time life insurance agent who is a current statutory employee. Free military turbotax A retired employee. Free military turbotax A former employee you maintain coverage for based on the employment relationship. Free military turbotax A widow or widower of an individual who died while an employee. Free military turbotax A widow or widower of a retired employee. Free military turbotax For the exclusion of contributions to an accident or health plan, a leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax Special rule for certain government plans. Free military turbotax   For certain government accident and health plans, payments to a deceased plan participant's beneficiary may qualify for the exclusion from gross income if the other requirements for exclusion are met. Free military turbotax See section 105(j) for details. Free military turbotax Exception for S corporation shareholders. Free military turbotax   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Free military turbotax A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax Exclusion from wages. Free military turbotax   You can generally exclude the value of accident or health benefits you provide to an employee from the employee's wages. Free military turbotax Exception for certain long-term care benefits. Free military turbotax   You cannot exclude contributions to the cost of long-term care insurance from an employee's wages subject to federal income tax withholding if the coverage is provided through a flexible spending or similar arrangement. Free military turbotax This is a benefit program that reimburses specified expenses up to a maximum amount that is reasonably available to the employee and is less than five times the total cost of the insurance. Free military turbotax However, you can exclude these contributions from the employee's wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Free military turbotax S corporation shareholders. Free military turbotax   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the value of accident or health benefits you provide to the employee in the employee's wages subject to federal income tax withholding. Free military turbotax However, you can exclude the value of these benefits (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Free military turbotax Exception for highly compensated employees. Free military turbotax   If your plan is a self-insured medical reimbursement plan that favors highly compensated employees, you must include all or part of the amounts you pay to these employees in their wages subject to federal income tax withholding. Free military turbotax However, you can exclude these amounts (other than payments for specific injuries or illnesses) from the employee's wages subject to social security, Medicare, and FUTA taxes. Free military turbotax   A self-insured plan is a plan that reimburses your employees for medical expenses not covered by an accident or health insurance policy. Free military turbotax   A highly compensated employee for this exception is any of the following individuals. Free military turbotax One of the five highest paid officers. Free military turbotax An employee who owns (directly or indirectly) more than 10% in value of the employer's stock. Free military turbotax An employee who is among the highest paid 25% of all employees (other than those who can be excluded from the plan). Free military turbotax   For more information on this exception, see section 105(h) of the Internal Revenue Code and its regulations. Free military turbotax COBRA premiums. Free military turbotax   The exclusion for accident and health benefits applies to amounts you pay to maintain medical coverage for a current or former employee under the Combined Omnibus Budget Reconciliation Act of 1986 (COBRA). Free military turbotax The exclusion applies regardless of the length of employment, whether you directly pay the premiums or reimburse the former employee for premiums paid, and whether the employee's separation is permanent or temporary. Free military turbotax Achievement Awards This exclusion applies to the value of any tangible personal property you give to an employee as an award for either length of service or safety achievement. Free military turbotax The exclusion does not apply to awards of cash, cash equivalents, gift certificates, or other intangible property such as vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, and other securities. Free military turbotax The award must meet the requirements for employee achievement awards discussed in chapter 2 of Publication 535, Business Expenses. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current employee. Free military turbotax A former common-law employee you maintain coverage for in consideration of or based on an agreement relating to prior service as an employee. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax Exception for S corporation shareholders. Free military turbotax   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Free military turbotax A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax Exclusion from wages. Free military turbotax   You can generally exclude the value of achievement awards you give to an employee from the employee's wages if their cost is not more than the amount you can deduct as a business expense for the year. Free military turbotax The excludable annual amount is $1,600 ($400 for awards that are not “qualified plan awards”). Free military turbotax See chapter 2 of Publication 535 for more information about the limit on deductions for employee achievement awards. Free military turbotax    To determine for 2014 whether an achievement award is a “qualified plan award” under the deduction rules described in Publication 535, treat any employee who received more than $115,000 in pay for 2013 as a highly compensated employee. Free military turbotax   If the cost of awards given to an employee is more than your allowable deduction, include in the employee's wages the larger of the following amounts. Free military turbotax The part of the cost that is more than your allowable deduction (up to the value of the awards). Free military turbotax The amount by which the value of the awards exceeds your allowable deduction. Free military turbotax Exclude the remaining value of the awards from the employee's wages. Free military turbotax Adoption Assistance An adoption assistance program is a separate written plan of an employer that meets all of the following requirements. Free military turbotax It benefits employees who qualify under rules set up by you, which do not favor highly compensated employees or their dependents. Free military turbotax To determine whether your plan meets this test, do not consider employees excluded from your plan who are covered by a collective bargaining agreement, if there is evidence that adoption assistance was a subject of good-faith bargaining. Free military turbotax It does not pay more than 5% of its payments during the year for shareholders or owners (or their spouses or dependents). Free military turbotax A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Free military turbotax You give reasonable notice of the plan to eligible employees. Free military turbotax Employees provide reasonable substantiation that payments or reimbursements are for qualifying expenses. Free military turbotax For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Free military turbotax The employee was a 5% owner at any time during the year or the preceding year. Free military turbotax The employee received more than $115,000 in pay for the preceding year. Free military turbotax You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Free military turbotax You must exclude all payments or reimbursements you make under an adoption assistance program for an employee's qualified adoption expenses from the employee's wages subject to federal income tax withholding. Free military turbotax However, you cannot exclude these payments from wages subject to social security, Medicare, and federal unemployment (FUTA) taxes. Free military turbotax For more information, see the Instructions for Form 8839, Qualified Adoption Expenses. Free military turbotax You must report all qualifying adoption expenses you paid or reimbursed under your adoption assistance program for each employee for the year in box 12 of the employee's Form W-2. Free military turbotax Use code “T” to identify this amount. Free military turbotax Exception for S corporation shareholders. Free military turbotax   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Free military turbotax A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, including using the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax Athletic Facilities You can exclude the value of an employee's use of an on-premises gym or other athletic facility you operate from an employee's wages if substantially all use of the facility during the calendar year is by your employees, their spouses, and their dependent children. Free military turbotax For this purpose, an employee's dependent child is a child or stepchild who is the employee's dependent or who, if both parents are deceased, has not attained the age of 25. Free military turbotax On-premises facility. Free military turbotax   The athletic facility must be located on premises you own or lease. Free military turbotax It does not have to be located on your business premises. Free military turbotax However, the exclusion does not apply to an athletic facility for residential use, such as athletic facilities that are part of a resort. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current employee. Free military turbotax A former employee who retired or left on disability. Free military turbotax A widow or widower of an individual who died while an employee. Free military turbotax A widow or widower of a former employee who retired or left on disability. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax A partner who performs services for a partnership. Free military turbotax De Minimis (Minimal) Benefits You can exclude the value of a de minimis benefit you provide to an employee from the employee's wages. Free military turbotax A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Free military turbotax Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare. Free military turbotax Examples of de minimis benefits include the following. Free military turbotax Personal use of an employer-provided cell phone provided primarily for noncompensatory business purposes. Free military turbotax See Employer-Provided Cell Phones , later in this section, for details. Free military turbotax Occasional personal use of a company copying machine if you sufficiently control its use so that at least 85% of its use is for business purposes. Free military turbotax Holiday gifts, other than cash, with a low fair market value. Free military turbotax Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000. Free military turbotax Meals. Free military turbotax See Meals , later in this section, for details. Free military turbotax Occasional parties or picnics for employees and their guests. Free military turbotax Occasional tickets for theater or sporting events. Free military turbotax Transportation fare. Free military turbotax See Transportation (Commuting) Benefits , later in this section, for details. Free military turbotax Employee. Free military turbotax   For this exclusion, treat any recipient of a de minimis benefit as an employee. Free military turbotax Dependent Care Assistance This exclusion applies to household and dependent care services you directly or indirectly pay for or provide to an employee under a dependent care assistance program that covers only your employees. Free military turbotax The services must be for a qualifying person's care and must be provided to allow the employee to work. Free military turbotax These requirements are basically the same as the tests the employee would have to meet to claim the dependent care credit if the employee paid for the services. Free military turbotax For more information, see Qualifying Person Test and Work-Related Expense Test in Publication 503, Child and Dependent Care Expenses. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current employee. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax Yourself (if you are a sole proprietor). Free military turbotax A partner who performs services for a partnership. Free military turbotax Exclusion from wages. Free military turbotax   You can exclude the value of benefits you provide to an employee under a dependent care assistance program from the employee's wages if you reasonably believe that the employee can exclude the benefits from gross income. Free military turbotax   An employee can generally exclude from gross income up to $5,000 of benefits received under a dependent care assistance program each year. Free military turbotax This limit is reduced to $2,500 for married employees filing separate returns. Free military turbotax   However, the exclusion cannot be more than the smaller of the earned income of either the employee or employee's spouse. Free military turbotax Special rules apply to determine the earned income of a spouse who is either a student or not able to care for himself or herself. Free military turbotax For more information on the earned income limit, see Publication 503. Free military turbotax Exception for highly compensated employees. Free military turbotax   You cannot exclude dependent care assistance from the wages of a highly compensated employee unless the benefits provided under the program do not favor highly compensated employees and the program meets the requirements described in section 129(d) of the Internal Revenue Code. Free military turbotax   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Free military turbotax The employee was a 5% owner at any time during the year or the preceding year. Free military turbotax The employee received more than $115,000 in pay for the preceding year. Free military turbotax You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Free military turbotax Form W-2. Free military turbotax   Report the value of all dependent care assistance you provide to an employee under a dependent care assistance program in box 10 of the employee's Form W-2. Free military turbotax Include any amounts you cannot exclude from the employee's wages in boxes 1, 3, and 5. Free military turbotax Report both the nontaxable portion of assistance (up to $5,000) and any assistance above the amount that is non-taxable to the employee. Free military turbotax Example. Free military turbotax   Company A provides a dependent care assistance flexible spending arrangement to its employees through a cafeteria plan. Free military turbotax In addition, it provides occasional on-site dependent care to its employees at no cost. Free military turbotax Emily, an employee of company A, had $4,500 deducted from her pay for the dependent care flexible spending arrangement. Free military turbotax In addition, Emily used the on-site dependent care several times. Free military turbotax The fair market value of the on-site care was $700. Free military turbotax Emily's Form W-2 should report $5,200 of dependent care assistance in box 10 ($4,500 flexible spending arrangement plus $700 on-site dependent care). Free military turbotax Boxes 1, 3, and 5 should include $200 (the amount in excess of the nontaxable assistance), and applicable taxes should be withheld on that amount. Free military turbotax Educational Assistance This exclusion applies to educational assistance you provide to employees under an educational assistance program. Free military turbotax The exclusion also applies to graduate level courses. Free military turbotax Educational assistance means amounts you pay or incur for your employees' education expenses. Free military turbotax These expenses generally include the cost of books, equipment, fees, supplies, and tuition. Free military turbotax However, these expenses do not include the cost of a course or other education involving sports, games, or hobbies, unless the education: Has a reasonable relationship to your business, or Is required as part of a degree program. Free military turbotax Education expenses do not include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Free military turbotax Nor do they include the cost of lodging, meals, or transportation. Free military turbotax Educational assistance program. Free military turbotax   An educational assistance program is a separate written plan that provides educational assistance only to your employees. Free military turbotax The program qualifies only if all of the following tests are met. Free military turbotax The program benefits employees who qualify under rules set up by you that do not favor highly compensated employees. Free military turbotax To determine whether your program meets this test, do not consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining. Free military turbotax The program does not provide more than 5% of its benefits during the year for shareholders or owners. Free military turbotax A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business. Free military turbotax The program does not allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance. Free military turbotax You give reasonable notice of the program to eligible employees. Free military turbotax Your program can cover former employees if their employment is the reason for the coverage. Free military turbotax   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Free military turbotax The employee was a 5% owner at any time during the year or the preceding year. Free military turbotax The employee received more than $115,000 in pay for the preceding year. Free military turbotax You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current employee. Free military turbotax A former employee who retired, left on disability, or was laid off. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax Yourself (if you are a sole proprietor). Free military turbotax A partner who performs services for a partnership. Free military turbotax Exclusion from wages. Free military turbotax   You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee's wages each year. Free military turbotax Assistance over $5,250. Free military turbotax   If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Free military turbotax Working condition benefits may be excluded from wages. Free military turbotax Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. Free military turbotax See Working Condition Benefits , later, in this section. Free military turbotax Employee Discounts This exclusion applies to a price reduction you give an employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services. Free military turbotax However, it does not apply to discounts on real property or discounts on personal property of a kind commonly held for investment (such as stocks or bonds). Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current employee. Free military turbotax A former employee who retired or left on disability. Free military turbotax A widow or widower of an individual who died while an employee. Free military turbotax A widow or widower of an employee who retired or left on disability. Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control. Free military turbotax A partner who performs services for a partnership. Free military turbotax Exclusion from wages. Free military turbotax   You can generally exclude the value of an employee discount you provide an employee from the employee's wages, up to the following limits. Free military turbotax For a discount on services, 20% of the price you charge nonemployee customers for the service. Free military turbotax For a discount on merchandise or other property, your gross profit percentage times the price you charge nonemployee customers for the property. Free military turbotax   Determine your gross profit percentage in the line of business based on all property you offer to customers (including employee customers) and your experience during the tax year immediately before the tax year in which the discount is available. Free military turbotax To figure your gross profit percentage, subtract the total cost of the property from the total sales price of the property and divide the result by the total sales price of the property. Free military turbotax Exception for highly compensated employees. Free military turbotax   You cannot exclude from the wages of a highly compensated employee any part of the value of a discount that is not available on the same terms to one of the following groups. Free military turbotax All of your employees. Free military turbotax A group of employees defined under a reasonable classification you set up that does not favor highly compensated employees. Free military turbotax   For this exclusion, a highly compensated employee for 2014 is an employee who meets either of the following tests. Free military turbotax The employee was a 5% owner at any time during the year or the preceding year. Free military turbotax The employee received more than $115,000 in pay for the preceding year. Free military turbotax You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Free military turbotax Employee Stock Options There are three kinds of stock options—incentive stock options, employee stock purchase plan options, and nonstatutory (nonqualified) stock options. Free military turbotax Wages for social security, Medicare, and federal unemployment (FUTA) taxes do not include remuneration resulting from the exercise, after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or from any disposition of stock acquired by exercising such an option. Free military turbotax The IRS will not apply these taxes to an exercise before October 23, 2004, of an incentive stock option or an employee stock purchase plan option or to a disposition of stock acquired by such exercise. Free military turbotax Additionally, federal income tax withholding is not required on the income resulting from a disqualifying disposition of stock acquired by the exercise after October 22, 2004, of an incentive stock option or under an employee stock purchase plan option, or on income equal to the discount portion of stock acquired by the exercise, after October 22, 2004, of an employee stock purchase plan option resulting from any disposition of the stock. Free military turbotax The IRS will not apply federal income tax withholding upon the disposition of stock acquired by the exercise, before October 23, 2004, of an incentive stock option or an employee stock purchase plan option. Free military turbotax However, the employer must report as income in box 1 of Form W-2, (a) the discount portion of stock acquired by the exercise of an employee stock purchase plan option upon disposition of the stock, and (b) the spread (between the exercise price and the fair market value of the stock at the time of exercise) upon a disqualifying disposition of stock acquired by the exercise of an incentive stock option or an employee stock purchase plan option. Free military turbotax An employer must report the excess of the fair market value of stock received upon exercise of a nonstatutory stock option over the amount paid for the stock option on Form W-2 in boxes 1, 3 (up to the social security wage base), 5, and in box 12 using the code “V. Free military turbotax ” See Regulations section 1. Free military turbotax 83-7. Free military turbotax An employee who transfers his or her interest in nonstatutory stock options to the employee's former spouse incident to a divorce is not required to include an amount in gross income upon the transfer. Free military turbotax The former spouse, rather than the employee, is required to include an amount in gross income when the former spouse exercises the stock options. Free military turbotax See Revenue Ruling 2002-22 and Revenue Ruling 2004-60 for details. Free military turbotax You can find Revenue Ruling 2002-22 on page 849 of Internal Revenue Bulletin 2002-19 at www. Free military turbotax irs. Free military turbotax gov/pub/irs-irbs/irb02-19. Free military turbotax pdf. Free military turbotax See Revenue Ruling 2004-60, 2004-24 I. Free military turbotax R. Free military turbotax B. Free military turbotax 1051, available at www. Free military turbotax irs. Free military turbotax gov/irb/2004-24_IRB/ar13. Free military turbotax html. Free military turbotax For more information about employee stock options, see sections 421, 422, and 423 of the Internal Revenue Code and their related regulations. Free military turbotax Employer-Provided Cell Phones The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Free military turbotax Personal use of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a de minimis fringe benefit. Free military turbotax For the rules relating to these types of benefits, see De Minimis (Minimal) Benefits , earlier in this section, and Working Condition Benefits , later in this section. Free military turbotax Noncompensatory business purposes. Free military turbotax   You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Free military turbotax Examples of substantial business reasons include the employer's: Need to contact the employee at all times for work-related emergencies, Requirement that the employee be available to speak with clients at times when the employee is away from the office, and Need to speak with clients located in other time zones at times outside the employee's normal workday. Free military turbotax Cell phones provided to promote goodwill, boost morale, or attract prospective employees. Free military turbotax   You cannot exclude from an employee's wages the value of a cell phone provided to promote goodwill of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee. Free military turbotax Additional information. Free military turbotax   For additional information on the tax treatment of employer-provided cell phones, see Notice 2011-72, 2011-38 I. Free military turbotax R. Free military turbotax B. Free military turbotax 407, available at  www. Free military turbotax irs. Free military turbotax gov/irb/2011-38_IRB/ar07. Free military turbotax html. Free military turbotax Group-Term Life Insurance Coverage This exclusion applies to life insurance coverage that meets all the following conditions. Free military turbotax It provides a general death benefit that is not included in income. Free military turbotax You provide it to a group of employees. Free military turbotax See The 10-employee rule , later. Free military turbotax It provides an amount of insurance to each employee based on a formula that prevents individual selection. Free military turbotax This formula must use factors such as the employee's age, years of service, pay, or position. Free military turbotax You provide it under a policy you directly or indirectly carry. Free military turbotax Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Free military turbotax Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit , later. Free military turbotax Group-term life insurance does not include the following insurance. Free military turbotax Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits. Free military turbotax Life insurance on the life of your employee's spouse or dependent. Free military turbotax However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. Free military turbotax See De Minimis (Minimal) Benefits , earlier in this section. Free military turbotax Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. Free military turbotax See Regulations section 1. Free military turbotax 79-1 for details. Free military turbotax Employee. Free military turbotax   For this exclusion, treat the following individuals as employees. Free military turbotax A current common-law employee. Free military turbotax A full-time life insurance agent who is a current statutory employee. Free military turbotax An individual who was formerly your employee under (1) or (2). Free military turbotax A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control. Free military turbotax Exception for S corporation shareholders. Free military turbotax   Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. Free military turbotax A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax The 10-employee rule. Free military turbotax   Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. Free military turbotax   For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. Free military turbotax For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. Free military turbotax However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Free military turbotax A permanent benefit is an economic value extending beyond one policy year (for example, a paid-up or cash-surrender value) that is provided under a life insurance policy. Free military turbotax Exceptions. Free military turbotax   Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Free military turbotax   Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. Free military turbotax If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical. Free military turbotax You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts. Free military turbotax You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. Free military turbotax See Regulations section 1. Free military turbotax 79-1 for details. Free military turbotax   Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. Free military turbotax You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you. Free military turbotax The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. Free military turbotax Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. Free military turbotax   To apply either exception, do not consider employees who were denied insurance for any of the following reasons. Free military turbotax They were 65 or older. Free military turbotax They customarily work 20 hours or less a week or 5 months or less in a calendar year. Free military turbotax They have not been employed for the waiting period given in the policy. Free military turbotax This waiting period cannot be more than 6 months. Free military turbotax Exclusion from wages. Free military turbotax   You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. Free military turbotax You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. Free military turbotax In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Free military turbotax Coverage over the limit. Free military turbotax   You must include in your employee's wages the cost of group-term life insurance beyond $50,000 worth of coverage, reduced by the amount the employee paid toward the insurance. Free military turbotax Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Free military turbotax Also, show it in box 12 with code “C. Free military turbotax ” The amount is subject to social security and Medicare taxes, and you may, at your option, withhold federal income tax. Free military turbotax   Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. Free military turbotax For all coverage provided within the calendar year, use the employee's age on the last day of the employee's tax year. Free military turbotax You must prorate the cost from the table if less than a full month of coverage is involved. Free military turbotax Table 2-2. Free military turbotax Cost Per $1,000 of Protection For 1 Month Age Cost Under 25 $ . Free military turbotax 05 25 through 29 . Free military turbotax 06 30 through 34 . Free military turbotax 08 35 through 39 . Free military turbotax 09 40 through 44 . Free military turbotax 10 45 through 49 . Free military turbotax 15 50 through 54 . Free military turbotax 23 55 through 59 . Free military turbotax 43 60 through 64 . Free military turbotax 66 65 through 69 1. Free military turbotax 27 70 and older 2. Free military turbotax 06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost. Free military turbotax Example. Free military turbotax Tom's employer provides him with group-term life insurance coverage of $200,000. Free military turbotax Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Free military turbotax Tom's employer must include $170 in his wages. Free military turbotax The $200,000 of insurance coverage is reduced by $50,000. Free military turbotax The yearly cost of $150,000 of coverage is $270 ($. Free military turbotax 15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. Free military turbotax The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. Free military turbotax The employer also enters $170 in box 12 with code “C. Free military turbotax ” Coverage for dependents. Free military turbotax   Group-term life insurance coverage paid by the employer for the spouse or dependents of an employee may be excludable from income as a de minimis fringe benefit if the face amount is not more than $2,000. Free military turbotax If the face amount is greater than $2,000, the entire cost of the dependent coverage must be included in income unless the amount over $2,000 is purchased with employee contributions on an after-tax basis. Free military turbotax The cost of the insurance is determined by using Table 2-2. Free military turbotax Former employees. Free military turbotax   When group-term life insurance over $50,000 is provided to an employee (including retirees) after his or her termination, the employee share of social security and Medicare taxes on that period of coverage is paid by the former employee with his or her tax return and is not collected by the employer. Free military turbotax You are not required to collect those taxes. Free military turbotax Use the table above to determine the amount of social security and Medicare taxes owed by the former employee for coverage provided after separation from service. Free military turbotax Report those uncollected amounts separately in box 12 of Form W-2 using codes “M” and “N. Free military turbotax ” See the General Instructions for Forms W-2 and W-3 and the Instructions for Form 941. Free military turbotax Exception for key employees. Free military turbotax   Generally, if your group-term life insurance plan favors key employees as to participation or benefits, you must include the entire cost of the insurance in your key employees' wages. Free military turbotax This exception generally does not apply to church plans. Free military turbotax When figuring social security and Medicare taxes, you must also include the entire cost in the employees' wages. Free military turbotax Include the cost in boxes 1, 3, and 5 of Form W-2. Free military turbotax However, you do not have to withhold federal income tax or pay FUTA tax on the cost of any group-term life insurance you provide to an employee. Free military turbotax   For this purpose, the cost of the insurance is the greater of the following amounts. Free military turbotax The premiums you pay for the employee's insurance. Free military turbotax See Regulations section 1. Free military turbotax 79-4T(Q&A 6) for more information. Free military turbotax The cost you figure using Table 2-2. Free military turbotax   For this exclusion, a key employee during 2014 is an employee or former employee who is one of the following individuals. Free military turbotax See section 416(i) of the Internal Revenue Code for more information. Free military turbotax An officer having annual pay of more than $170,000. Free military turbotax An individual who for 2014 was either of the following. Free military turbotax A 5% owner of your business. Free military turbotax A 1% owner of your business whose annual pay was more than $150,000. Free military turbotax   A former employee who was a key employee upon retirement or separation from service is also a key employee. Free military turbotax   Your plan does not favor key employees as to participation if at least one of the following is true. Free military turbotax It benefits at least 70% of your employees. Free military turbotax At least 85% of the participating employees are not key employees. Free military turbotax It benefits employees who qualify under a set of rules you set up that do not favor key employees. Free military turbotax   Your plan meets this participation test if it is part of a cafeteria plan (discussed in section 1) and it meets the participation test for those plans. Free military turbotax   When applying this test, do not consider employees who: Have not completed 3 years of service, Are part-time or seasonal, Are nonresident aliens who receive no U. Free military turbotax S. Free military turbotax source earned income from you, or Are not included in the plan but are in a unit of employees covered by a collective bargaining agreement, if the benefits provided under the plan were the subject of good-faith bargaining between you and employee representatives. Free military turbotax   Your plan does not favor key employees as to benefits if all benefits available to participating key employees are also available to all other participating employees. Free military turbotax Your plan does not favor key employees just because the amount of insurance you provide to your employees is uniformly related to their pay. Free military turbotax S corporation shareholders. Free military turbotax   Because you cannot treat a 2% shareholder of an S corporation as an employee for this exclusion, you must include the cost of all group-term life insurance coverage you provide the 2% shareholder in his or her wages. Free military turbotax When figuring social security and Medicare taxes, you must also include the cost of this coverage in the 2% shareholder's wages. Free military turbotax Include the cost in boxes 1, 3, and 5 of Form W-2. Free military turbotax However, you do not have to withhold federal income tax or pay federal unemployment tax on the cost of any group-term life insurance coverage you provide to the 2% shareholder. Free military turbotax Health Savings Accounts A Health Savings Account (HSA) is an account owned by a qualified individual who is generally your employee or former employee. Free military turbotax Any contributions that you make to an HSA become the employee's property and cannot be withdrawn by you. Free military turbotax Contributions to the account are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Free military turbotax The medical expenses must not be reimbursable by insurance or other sources and their payment from HSA funds (distribution) will not give rise to a medical expense deduction on the individual's federal income tax return. Free military turbotax For more information about HSAs, visit the Department of Treasury's website at www. Free military turbotax treasury. Free military turbotax gov and enter “HSA” in the search box. Free military turbotax Eligibility. Free military turbotax   A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance except for permitted insurance listed under section 223(c)(3) or insurance for accidents, disability, dental care, vision care, or long-term care. Free military turbotax For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage and $12,700 for family coverage. Free military turbotax   There are no income limits that restrict an individual's eligibility to contribute to an HSA nor is there a requirement that the account owner have earned income to make a contribution. Free military turbotax Exceptions. Free military turbotax   An individual is not a qualified individual if he or she can be claimed as a dependent on another person's tax return. Free military turbotax Also, an employee's participation in a health flexible spending arrangement (FSA) or health reimbursement arrangement (HRA) generally disqualifies the individual (and employer) from making contributions to his or her HSA. Free military turbotax However, an individual may qualify to participate in an HSA if he or she is participating in only a limited-purpose FSA or HRA or a post-deductible FSA. Free military turbotax For more information, see Other employee health plans in Publication 969. Free military turbotax Employer contributions. Free military turbotax   Up to specified dollar limits, cash contributions to the HSA of a qualified individual (determined monthly) are exempt from federal income tax withholding, social security tax, Medicare tax, and FUTA tax. Free military turbotax For 2014, you can contribute up to $3,300 for self-only coverage or $6,550 for family coverage to a qualified individual's HSA. Free military turbotax   The contribution amounts listed above are increased by $1,000 for a qualified individual who is age 55 or older at any time during the year. Free military turbotax For two qualified individuals who are married to each other and who each are age 55 or older at any time during the year, each spouse's contribution limit is increased by $1,000 provided each spouse has a separate HSA. Free military turbotax No contributions can be made to an individual's HSA after he or she becomes enrolled in Medicare Part A or Part B. Free military turbotax Nondiscrimination rules. Free military turbotax    Your contribution amount to an employee's HSA must be comparable for all employees who have comparable coverage during the same period. Free military turbotax Otherwise, there will be an excise tax equal to 35% of the amount you contributed to all employees' HSAs. Free military turbotax   For guidance on employer comparable contributions to HSAs under section 4980G in instances where an employee has not established an HSA by December 31 and in instances where an employer accelerates contributions for the calendar year for employees who have incurred qualified medical expenses, see Regulations section 54. Free military turbotax 4980G-4. Free military turbotax Exception. Free military turbotax   The Tax Relief and Health Care Act of 2006 allows employers to make larger HSA contributions for a nonhighly compensated employee than for a highly compensated employee. Free military turbotax A highly compensated employee for 2014 is an employee who meets either of the following tests. Free military turbotax The employee was a 5% owner at any time during the year or the preceding year. Free military turbotax The employee received more than $115,000 in pay for the preceding year. Free military turbotax You can choose to ignore test (2) if the employee was not also in the top 20% of employees when ranked by pay for the preceding year. Free military turbotax Partnerships and S corporations. Free military turbotax   Partners and 2% shareholders of an S corporation are not eligible for salary reduction (pre-tax) contributions to an HSA. Free military turbotax Employer contributions to the HSA of a bona fide partner or 2% shareholder are treated as distributions or guaranteed payments as determined by the facts and circumstances. Free military turbotax Cafeteria plans. Free military turbotax   You may contribute to an employee's HSA using a cafeteria plan and your contributions are not subject to the statutory comparability rules. Free military turbotax However, cafeteria plan nondiscrimination rules still apply. Free military turbotax For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Free military turbotax Contributions that favor lower-paid employees are not prohibited. Free military turbotax Reporting requirements. Free military turbotax   You must report your contributions to an employee's HSA in box 12 of Form W-2 using code “W. Free military turbotax ” The trustee or custodian of the HSA, generally a bank or insurance company, reports distributions from the HSA using Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. Free military turbotax Lodging on Your Business Premises You can exclude the value of lodging you furnish to an employee from the employee's wages if it meets the following tests. Free military turbotax It is furnished on your business premises. Free military turbotax It is furnished for your convenience. Free military turbotax The employee must accept it as a condition of employment. Free military turbotax Different tests may apply to lodging furnished by educational institutions. Free military turbotax See section 119(d) of the Internal Revenue Code for details. Free military turbotax The exclusion does not apply if you allow your employee to choose to receive additional pay instead of lodging. Free military turbotax On your business premises. Free military turbotax   For this exclusion, your business premises is generally your employee's place of work. Free military turbotax For special rules that apply to lodging furnished in a camp located in a foreign country, see section 119(c) of the Internal Revenue Code and its regulations. Free military turbotax For your convenience. Free military turbotax   Whether or not you furnish lodging for your convenience as an employer depends on all the facts and circumstances. Free military turbotax You furnish the lodging to your employee for your convenience if you do this for a substantial business reason other than to provide the employee with additional pay. Free military turbotax This is true even if a law or an employment contract provides that the lodging is furnished as pay. Free military turbotax However, a written statement that the lodging is furnished for your convenience is not sufficient. Free military turbotax Condition of employment. Free military turbotax   Lodging meets this test if you require your employees to accept the lodging because they need to live on your business premises to be able to properly perform their duties. Free military turbotax Examples include employees who must be available at all times and employees who could not perform their required duties without being furnished the lodging. Free military turbotax   It does not matter whether you must furnish the lodging as pay under the terms of an employment contract or a law fixing the terms of employment. Free military turbotax Example. Free military turbotax A hospital gives Joan, an employee of the hospital, the choice of living at the hospital free of charge or living elsewhere and receiving a cash allowance in addition to her regular salary. Free military turbotax If Joan chooses to live at the hospital, the hospital cannot exclude the value of the lodging from her wages because she is not required to live at the hospital to properly perform the duties of her employment. Free military turbotax S corporation shareholders. Free military turbotax   For this exclusion, do not treat a 2% shareholder of an S corporation as an employee of the corporation. Free military turbotax A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Free military turbotax Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. Free military turbotax Meals This section discusses the exclusion rules that apply to de minimis meals and meals on your business premises. Free military turbotax De Minimis Meals You can exclude any occasional meal or meal money you provide to an employee if it has so little value (taking into account how frequently you provide meals to your employees) that accounting for it would be unreasonable or administratively impracticable. Free military turbotax The exclusion applies, for example, to the following items. Free military turbotax Coffee, doughnuts, or soft drinks. Free military turbotax Occasional meals or meal money provided to enable an employee to work overtime. Free military turbotax However, the exclusion does not apply to meal money figured on the basis of hours worked. Free military turbotax Occasional parties or picnics for employees and their guests. Free military turbotax This exclusion also applies to meals you provide at an employer-operated eating facility for employees if the annual revenue from the facility equals or exceeds the direct costs of the facility. Free military turbotax For this purpose, your revenue from providing a meal is considered equal to the facility's direct operating costs to provide that meal if its value can be excluded from an employee's wages as explained under Meals on Your Business Premises , later. Free military turbotax If food or beverages you furnish to employees qualify as a de minimis benefit, you can deduct their full cost. Free military turbotax The 50% limit on deductions for the cost of meals does not apply. Free military turbotax The deduction limit on meals is discussed in chapter 2 of Publication 535. Free military turbotax Employee. Free military turbotax   For this exclusion, treat any recipient of a de minimis meal as
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Free military turbotax Publication 523 - Main Content Table of Contents Main HomeVacant land. Free military turbotax Factors used to determine main home. Free military turbotax 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. Free military turbotax Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. Free military turbotax Individual taxpayer identification number (ITIN). Free military turbotax More information. Free military turbotax Comprehensive Examples Special SituationsException for sales to related persons. Free military turbotax Deducting Taxes in the Year of SaleForm 1099-S. Free military turbotax More information. Free military turbotax Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. Free military turbotax Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. Free military turbotax ” 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. Free military turbotax 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. Free military turbotax Land. Free military turbotax   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. Free military turbotax Example. Free military turbotax You buy a piece of land and move your main home to it. Free military turbotax Then, you sell the land on which your main home was located. Free military turbotax This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Free military turbotax Vacant land. Free military turbotax   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. Free military turbotax 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. Free military turbotax See Excluding the Gain , later. Free military turbotax The destruction of your home is treated as a sale of your home. Free military turbotax 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. Free military turbotax For information, see Publication 547. Free military turbotax More than one home. Free military turbotax   If you have more than one home, you can exclude gain only from the sale of your main home. Free military turbotax You must include in income the gain from the sale of any other home. Free military turbotax 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. Free military turbotax Example 1. Free military turbotax You own two homes, one in New York and one in Florida. Free military turbotax 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. Free military turbotax In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Free military turbotax You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Free military turbotax Example 2. Free military turbotax You own a house, but you live in another house that you rent. Free military turbotax The rented house is your main home. Free military turbotax Example 3. Free military turbotax You own two homes, one in Virginia and one in New Hampshire. Free military turbotax In 2009 and 2010, you lived in the Virginia home. Free military turbotax In 2011 and 2012, you lived in the New Hampshire home. Free military turbotax In 2013, you lived again in the Virginia home. Free military turbotax Your main home in 2009, 2010, and 2013 is the Virginia home. Free military turbotax Your main home in 2011 and 2012 is the New Hampshire home. Free military turbotax You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Free military turbotax Factors used to determine main home. Free military turbotax   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. Free military turbotax Those factors include the following. Free military turbotax Your place of employment. Free military turbotax The location of your family members' main home. Free military turbotax Your mailing address for bills and correspondence. Free military turbotax The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. Free military turbotax The location of the banks you use. Free military turbotax The location of recreational clubs and religious organizations of which you are a member. Free military turbotax Property used partly as your main home. Free military turbotax   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. Free military turbotax For details, see Business Use or Rental of Home , later. Free military turbotax 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. Free military turbotax Subtract the adjusted basis from the amount realized to get your gain or loss. Free military turbotax     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. Free military turbotax   Gain is the excess of the amount realized over the adjusted basis of the property. Free military turbotax Loss. Free military turbotax   Loss is the excess of the adjusted basis over the amount realized for the property. Free military turbotax Selling Price The selling price is the total amount you receive for your home. Free military turbotax 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. Free military turbotax Personal property. Free military turbotax   The selling price of your home does not include amounts you received for personal property sold with your home. Free military turbotax Personal property is property that is not a permanent part of the home. Free military turbotax Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. Free military turbotax Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). Free military turbotax Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. Free military turbotax Payment by employer. Free military turbotax   You may have to sell your home because of a job transfer. Free military turbotax 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. Free military turbotax 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. Free military turbotax Option to buy. Free military turbotax   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. Free military turbotax If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Free military turbotax Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. Free military turbotax Form 1099-S. Free military turbotax   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. Free military turbotax   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. Free military turbotax Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Free military turbotax Amount Realized The amount realized is the selling price minus selling expenses. Free military turbotax Selling expenses. Free military turbotax   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Free military turbotax ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Free military turbotax This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Free military turbotax For information on how to figure your home's adjusted basis, see Determining Basis , later. Free military turbotax Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Free military turbotax Gain on sale. Free military turbotax   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. Free military turbotax Loss on sale. Free military turbotax   If the amount realized is less than the adjusted basis, the difference is a loss. Free military turbotax Generally, a loss on the sale of your main home cannot be deducted. Free military turbotax Jointly owned home. Free military turbotax   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Free military turbotax Separate returns. Free military turbotax   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Free military turbotax Your ownership interest is generally determined by state law. Free military turbotax Joint owners not married. Free military turbotax   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. Free military turbotax Each of you applies the rules discussed in this publication on an individual basis. Free military turbotax Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Free military turbotax Foreclosure or repossession. Free military turbotax   If your home was foreclosed on or repossessed, you have a disposition. Free military turbotax See Publication 4681 to determine if you have ordinary income, gain, or loss. Free military turbotax More information. Free military turbotax   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. Free military turbotax Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. Free military turbotax Abandonment. Free military turbotax   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Free military turbotax Trading (exchanging) homes. Free military turbotax   If you trade your home for another home, treat the trade as a sale and a purchase. Free military turbotax Example. Free military turbotax You owned and lived in a home with an adjusted basis of $41,000. Free military turbotax 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. Free military turbotax This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). Free military turbotax 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). Free military turbotax Transfer to spouse. Free military turbotax   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). Free military turbotax This is true even if you receive cash or other consideration for the home. Free military turbotax As a result, the rules explained in this publication do not apply. Free military turbotax   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. Free military turbotax You have no gain or loss. Free military turbotax Exception. Free military turbotax   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. Free military turbotax In that case, you generally will have a gain or loss. Free military turbotax More information. Free military turbotax    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. Free military turbotax Involuntary conversion. Free military turbotax   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. Free military turbotax 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 ). Free military turbotax Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Free military turbotax Your basis in your home is determined by how you got the home. Free military turbotax Generally, your basis is its cost if you bought it or built it. Free military turbotax If you got it in some other way (inheritance, gift, etc. Free military turbotax ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Free military turbotax While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Free military turbotax 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. Free military turbotax To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. Free military turbotax Filled-in examples of that worksheet are included in the Comprehensive Examples , later. Free military turbotax Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Free military turbotax Purchase. Free military turbotax   If you bought your home, your basis is its cost to you. Free military turbotax This includes the purchase price and certain settlement or closing costs. Free military turbotax 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. Free military turbotax If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. Free military turbotax Seller-paid points. Free military turbotax   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. Free military turbotax    IF you bought your home. Free military turbotax . Free military turbotax . Free military turbotax THEN reduce your home's basis by the seller-paid points. Free military turbotax . Free military turbotax . Free military turbotax after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. Free military turbotax after April 3, 1994 even if you did not deduct them. Free military turbotax Settlement fees or closing costs. Free military turbotax   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Free military turbotax 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. Free military turbotax 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). Free military turbotax   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free military turbotax   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. Free military turbotax   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. Free military turbotax Real estate taxes. Free military turbotax   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. Free military turbotax    IF. Free military turbotax . Free military turbotax . Free military turbotax AND. Free military turbotax . Free military turbotax . Free military turbotax THEN the taxes. Free military turbotax . Free military turbotax . Free military turbotax 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. Free military turbotax the seller reimburses you do not affect the basis of your home. Free military turbotax 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. Free military turbotax you reimburse the seller do not affect the basis of your home. Free military turbotax Construction. Free military turbotax   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. Free military turbotax   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. Free military turbotax It also includes certain settlement or closing costs. Free military turbotax You may have to reduce your basis by points the seller paid for you. Free military turbotax For more information, see Seller-paid points and Settlement fees or closing costs , earlier. Free military turbotax Built by you. Free military turbotax   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Free military turbotax 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. Free military turbotax Temporary housing. Free military turbotax   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. Free military turbotax To figure the amount of the reduction, multiply the contract price by a fraction. Free military turbotax 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. Free military turbotax Cooperative apartment. Free military turbotax   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. Free military turbotax This may include your share of a mortgage on the apartment building. Free military turbotax Condominium. Free military turbotax   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. Free military turbotax 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. Free military turbotax These situations are discussed in the following pages. Free military turbotax Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. Free military turbotax Other special rules may apply in certain situations. Free military turbotax 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. Free military turbotax Home received as gift. Free military turbotax   Use the following chart to find the basis of a home you received as a gift. Free military turbotax IF the donor's adjusted basis at the time of the gift was. Free military turbotax . Free military turbotax . Free military turbotax THEN your basis is. Free military turbotax . Free military turbotax . Free military turbotax 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. Free military turbotax   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. Free military turbotax If using the fair market value results in a gain, you have neither gain nor loss. Free military turbotax 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. Free military turbotax 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). Free military turbotax Fair market value. Free military turbotax   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. Free military turbotax 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. Free military turbotax Part of federal gift tax due to net increase in value. Free military turbotax   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. Free military turbotax 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. Free military turbotax The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. Free military turbotax Home acquired from a decedent who died before or after 2010. Free military turbotax   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). Free military turbotax 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. Free military turbotax 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. Free military turbotax Surviving spouse. Free military turbotax   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. Free military turbotax The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). Free military turbotax The basis in your interest will remain the same. Free military turbotax Your new basis in the home is the total of these two amounts. Free military turbotax   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. Free military turbotax Example. Free military turbotax 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. Free military turbotax 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). Free military turbotax Community property. Free military turbotax   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. Free military turbotax 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. Free military turbotax 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. Free military turbotax   For more information about community property, see Publication 555, Community Property. Free military turbotax    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. Free military turbotax Home received as trade. Free military turbotax   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. Free military turbotax If you traded one home for another, you have made a sale and purchase. Free military turbotax In that case, you may have a gain. Free military turbotax See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. Free military turbotax Home received from spouse. Free military turbotax   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. Free military turbotax Transfers after July 18, 1984. Free military turbotax   If you received the home after July 18, 1984, there was no gain or loss on the transfer. Free military turbotax 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. Free military turbotax 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. Free military turbotax   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. Free military turbotax This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. Free military turbotax Your basis in the half interest you already owned does not change. Free military turbotax Your new basis in the home is the total of these two amounts. Free military turbotax Transfers before July 19, 1984. Free military turbotax   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. Free military turbotax More information. Free military turbotax   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. Free military turbotax Involuntary conversion. Free military turbotax   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. Free military turbotax 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. Free military turbotax Example. Free military turbotax A fire destroyed your home that you owned and used for only 6 months. Free military turbotax The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. Free military turbotax Your gain is $50,000 ($130,000 − $80,000). Free military turbotax You bought a replacement home for $100,000. Free military turbotax 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. Free military turbotax The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. Free military turbotax The basis of the new home is figured as follows. Free military turbotax Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. Free military turbotax   For more information about basis, see Publication 551. Free military turbotax Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Free military turbotax To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. Free military turbotax Filled-in examples of that worksheet are included in Comprehensive Examples , later. Free military turbotax Recordkeeping. Free military turbotax You should keep records to prove your home's adjusted basis. Free military turbotax 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. Free military turbotax 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. Free military turbotax Keep records proving the basis of both homes as long as they are needed for tax purposes. Free military turbotax 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. Free military turbotax Increases to Basis These include the following. Free military turbotax Additions and other improvements that have a useful life of more than 1 year. Free military turbotax Special assessments for local improvements. Free military turbotax Amounts you spent after a casualty to restore damaged property. Free military turbotax Improvements. Free military turbotax   These add to the value of your home, prolong its useful life, or adapt it to new uses. Free military turbotax You add the cost of additions and other improvements to the basis of your property. Free military turbotax   The following chart lists some other examples of improvements. Free military turbotax 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. Free military turbotax   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Free military turbotax Example. Free military turbotax You put wall-to-wall carpeting in your home 15 years ago. Free military turbotax Later, you replaced that carpeting with new wall-to-wall carpeting. Free military turbotax The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Free military turbotax Repairs. Free military turbotax   These maintain your home in good condition but do not add to its value or prolong its life. Free military turbotax You do not add their cost to the basis of your property. Free military turbotax Examples. Free military turbotax Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Free military turbotax Exception. Free military turbotax   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. Free military turbotax 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. Free military turbotax Decreases to Basis These include the following. Free military turbotax Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). Free military turbotax For details, see Publication 4681. Free military turbotax Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Free military turbotax For details, see Publication 4681. Free military turbotax Gain you postponed from the sale of a previous home before May 7, 1997. Free military turbotax Deductible casualty losses. Free military turbotax Insurance payments you received or expect to receive for casualty losses. Free military turbotax Payments you received for granting an easement or right-of-way. Free military turbotax Depreciation allowed or allowable if you used your home for business or rental purposes. Free military turbotax Energy-related credits allowed for expenditures made on the residence. Free military turbotax (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Free military turbotax ) Adoption credit you claimed for improvements added to the basis of your home. Free military turbotax Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Free military turbotax 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. Free military turbotax 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. Free military turbotax District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. Free military turbotax 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. Free military turbotax Discharges of qualified principal residence indebtedness. Free military turbotax   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Free military turbotax This exclusion applies to discharges made after 2006 and before 2014. Free military turbotax 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. Free military turbotax   File Form 982 with your tax return. Free military turbotax See the form's instructions for detailed information. Free military turbotax    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. Free military turbotax In most cases, this would occur in a refinancing or a restructuring of the mortgage. Free military turbotax Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Free military turbotax 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. Free military turbotax To qualify, you must meet the ownership and use tests described later. Free military turbotax 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. Free military turbotax 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. Free military turbotax You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. Free military turbotax If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Free military turbotax See Publication 505, Tax Withholding and Estimated Tax. Free military turbotax 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. Free military turbotax You meet the ownership test. Free military turbotax You meet the use test. Free military turbotax During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Free military turbotax For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. Free military turbotax 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. Free military turbotax 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 . Free military turbotax Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Free military turbotax 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). Free military turbotax Exception. Free military turbotax   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. Free military turbotax However, the maximum amount you may be able to exclude will be reduced. Free military turbotax See Reduced Maximum Exclusion , later. Free military turbotax Example 1—home owned and occupied for at least 2 years. Free military turbotax Mya bought and moved into her main home in September 2011. Free military turbotax She sold the home at a gain in October 2013. Free military turbotax 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. Free military turbotax She meets the ownership and use tests. Free military turbotax Example 2—ownership test met but use test not met. Free military turbotax Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Free military turbotax He later sold the home for a gain in June 2013. Free military turbotax He owned the home during the entire 5-year period ending on the date of sale. Free military turbotax He meets the ownership test but not the use test. Free military turbotax He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Free military turbotax 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. Free military turbotax 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. Free military turbotax Example. Free military turbotax Naomi bought and moved into a house in July 2009. Free military turbotax She lived there for 13 months and then moved in with a friend. Free military turbotax She later moved back into her house and lived there for 12 months until she sold it in August 2013. Free military turbotax 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. Free military turbotax Temporary absence. Free military turbotax   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. Free military turbotax The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Free military turbotax Example 1. Free military turbotax David Johnson, who is single, bought and moved into his home on February 1, 2011. Free military turbotax Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Free military turbotax David sold the house on March 1, 2013. Free military turbotax 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. Free military turbotax 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. Free military turbotax Example 2. Free military turbotax 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. Free military turbotax Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Free military turbotax He cannot exclude any part of his gain because he did not use the residence for the required 2 years. Free military turbotax Ownership and use tests met at different times. Free military turbotax   You can meet the ownership and use tests during different 2-year periods. Free military turbotax However, you must meet both tests during the 5-year period ending on the date of the sale. Free military turbotax Example. Free military turbotax Beginning in 2002, Helen Jones lived in a rented apartment. Free military turbotax The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Free military turbotax In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Free military turbotax On July 12, 2013, while still living in her daughter's home, she sold her condominium. Free military turbotax 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. Free military turbotax She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Free military turbotax She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Free military turbotax 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. Free military turbotax Cooperative apartment. Free military turbotax   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. Free military turbotax Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Free military turbotax Exception for individuals with a disability. Free military turbotax   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. Free military turbotax 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. Free military turbotax   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. Free military turbotax Previous home destroyed or condemned. Free military turbotax   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. Free military turbotax 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). Free military turbotax 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. Free military turbotax Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Free military turbotax   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. Free military turbotax 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. Free military turbotax 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. Free military turbotax   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. Free military turbotax Example. Free military turbotax John bought and moved into a home in 2005. Free military turbotax He lived in it as his main home for 2½ years. Free military turbotax For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Free military turbotax He then sold the home at a gain in 2013. Free military turbotax 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. Free military turbotax This means he can disregard those 6 years. Free military turbotax Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. Free military turbotax He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Free military turbotax Period of suspension. Free military turbotax   The period of suspension cannot last more than 10 years. Free military turbotax Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. Free military turbotax You cannot suspend the 5-year period for more than one property at a time. Free military turbotax You can revoke your choice to suspend the 5-year period at any time. Free military turbotax Example. Free military turbotax Mary bought a home on April 1, 1997. Free military turbotax She used it as her main home until August 31, 2000. Free military turbotax On September 1, 2000, she went on qualified official extended duty with the Navy. Free military turbotax She did not live in the house again before selling it on July 31, 2013. Free military turbotax Mary chooses to use the entire 10-year suspension period. Free military turbotax 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. Free military turbotax 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. Free military turbotax She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. Free military turbotax Uniformed services. Free military turbotax   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. Free military turbotax Foreign Service member. Free military turbotax   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. Free military turbotax A Chief of mission. Free military turbotax An Ambassador at large. Free military turbotax A member of the Senior Foreign Service. Free military turbotax A Foreign Service officer. Free military turbotax Part of the Foreign Service personnel. Free military turbotax Employee of the intelligence community. Free military turbotax   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. Free military turbotax The Office of the Director of National Intelligence. Free military turbotax The Central Intelligence Agency. Free military turbotax The National Security Agency. Free military turbotax The Defense Intelligence Agency. Free military turbotax The National Geospatial-Intelligence Agency. Free military turbotax The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. Free military turbotax 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. Free military turbotax The Bureau of Intelligence and Research of the Department of State. Free military turbotax Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. Free military turbotax Qualified official extended duty. Free military turbotax   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. Free military turbotax   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. Free military turbotax 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. Free military turbotax (But see Special rules for joint returns, next. Free military turbotax ) Special rules for joint returns. Free military turbotax   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Free military turbotax You are married and file a joint return for the year. Free military turbotax Either you or your spouse meets the ownership test. Free military turbotax Both you and your spouse meet the use test. Free military turbotax 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. Free military turbotax 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. Free military turbotax For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Free military turbotax Example 1—one spouse sells a home. Free military turbotax Emily sells her home in June 2013 for a gain of $300,000. Free military turbotax She marries Jamie later in the year. Free military turbotax She meets the ownership and use tests, but Jamie does not. Free military turbotax Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Free military turbotax The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Free military turbotax Example 2—each spouse sells a home. Free military turbotax 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. Free military turbotax He meets the ownership and use tests on his home, but Emily does not. Free military turbotax Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Free military turbotax However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Free military turbotax Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Free military turbotax 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. Free military turbotax Sale of main home by surviving spouse. Free military turbotax   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. Free military turbotax   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. Free military turbotax The sale or exchange took place after 2008. Free military turbotax The sale or exchange took place no more than 2 years after the date of death of your spouse. Free military turbotax You have not remarried. Free military turbotax You and your spouse met the use test at the time of your spouse's death. Free military turbotax You or your spouse met the ownership test at the time of your spouse's death. Free military turbotax Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. Free military turbotax The ownership and use tests were described earlier. Free military turbotax Example. Free military turbotax Harry owned and used a house as his main home since 2009. Free military turbotax Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. Free military turbotax Harry died on August 15, 2013, and Wilma inherited the property. Free military turbotax Wilma sold the property on September 1, 2013, at which time she had not remarried. Free military turbotax 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. Free military turbotax Home transferred from spouse. Free military turbotax   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. Free military turbotax Use of home after divorce. Free military turbotax   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. Free military turbotax 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. Free military turbotax 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. Free military turbotax In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Free military turbotax A change in place of employment. Free military turbotax Health. Free military turbotax Unforeseen circumstances. Free military turbotax Qualified individual. Free military turbotax   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. Free military turbotax You. Free military turbotax Your spouse. Free military turbotax A co-owner of the home. Free military turbotax A person whose main home is the same as yours. Free military turbotax Primary reason for sale. Free military turbotax   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. Free military turbotax You qualify under a “safe harbor. Free military turbotax ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. Free military turbotax Safe harbors corresponding to the reasons listed above are described later. Free military turbotax 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. Free military turbotax  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. Free military turbotax 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. Free military turbotax Employment. Free military turbotax   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. Free military turbotax It also includes the start or continuation of self-employment. Free military turbotax Distance safe harbor. Free military turbotax   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). Free military turbotax Example. Free military turbotax Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. Free military turbotax He got a job in North Carolina and sold his townhouse in 2013. Free military turbotax 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. Free military turbotax 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. Free military turbotax 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. Free military turbotax The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. Free military turbotax 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. Free military turbotax Parent, grandparent, stepmother, stepfather. Free military turbotax Child, grandchild, stepchild, adopted child, eligible foster child. Free military turbotax Brother, sister, stepbrother, stepsister, half-brother, half-sister. Free military turbotax Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Free military turbotax Uncle, aunt, nephew, niece, or cousin. Free military turbotax Example. Free military turbotax In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. Free military turbotax Lauren's father has a chronic disease and is unable to care for himself. Free military turbotax In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. Free military turbotax 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. Free military turbotax Doctor's recommendation safe harbor. Free military turbotax   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. Free military turbotax 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. Free military turbotax 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. Free military turbotax Specific event safe harbors. Free military turbotax   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. Free military turbotax An involuntary conversion of your home, such as when your home is destroyed or condemned. Free military turbotax 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. Free military turbotax 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. Free military turbotax An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. Free military turbotax For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. Free military turbotax Reasonable basic living expenses. Free military turbotax   Reasonable basic living expenses for your household include the following. Free military turbotax Amounts spent for food. Free military turbotax Amounts spent for clothing. Free military turbotax Housing and related expenses. Free military turbotax Medical expenses. Free military turbotax Transportation expenses. Free military turbotax Tax payments. Free military turbotax Court-ordered payments. Free military turbotax Expenses reasonably necessary to produce income. Free military turbotax   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. Free military turbotax 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. Free military turbotax 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). Free military turbotax Exceptions. Free military turbotax   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. Free military turbotax Calculation. Free military turbotax   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. Free military turbotax   For examples of this calculation, see Business Use or Rental of Home , next. Free military turbotax 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. Free military turbotax Example 1. Free military turbotax On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Free military turbotax 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. Free military turbotax The house was rented from June 1, 2009, to March 31, 2011. Free military turbotax Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Free military turbotax 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. Free military turbotax 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. Free military turbotax 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. Free military turbotax 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. Free military turbotax Example 2. Free military turbotax William owned and used a house as his main home from 2007 through 2010. Free military turbotax On January 1, 2011, he moved to another state. Free military turbotax He rented his house from that date until April 30, 2013, when he sold it. Free military turbotax 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. Free military turbotax Because it was rental property at the time of the sale, he must report the sale on Form 4797. Free military turbotax 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. Free military turbotax Because he met the ownership and use tests, he can exclude gain up to $250,000. Free military turbotax 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. Free military turbotax Depreciation after May 6, 1997. Free military turbotax   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. Free military turbotax 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. Free military turbotax Unrecaptured section 1250 gain. Free military turbotax   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. Free military turbotax 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. Free military turbotax Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. Free military turbotax Worksheet 2. Free military turbotax Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. Free military turbotax Gain or (Loss) on Sale       1. Free military turbotax   Selling price of home 1. Free military turbotax     2. Free military turbotax   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. Free military turbotax     3. Free military turbotax   Subtract line 2 from line 1. Free military turbotax This is the amount realized 3. Free military turbotax     4. Free military turbotax   Adjusted basis of home sold (from Worksheet 1, line 13) 4. Free military turbotax     5. Free military turbotax   Gain or (loss) on the sale. Free military turbotax Subtract line 4 from line 3. Free military turbotax If this is a loss, stop here 5. Free military turbotax 200,000   Part 2. Free military turbotax Exclusion and Taxable Gain       6. Free military turbotax   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. Free military turbotax If none, enter -0- 6. Free military turbotax 10,000   7. Free military turbotax   Subtract line 6 from line 5. Free military turbotax If the result is less than zero, enter -0- 7. Free military turbotax 190,000   8. Free military turbotax   Aggregate number of days of nonqualified use after 2008. Free military turbotax If none, enter -0-. Free military turbotax  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. Free military turbotax 668   9. Free military turbotax   Number of days taxpayer owned the property 9. Free military turbotax 2,080   10. Free military turbotax   Divide the amount on line 8 by the amount on line 9. Free military turbotax Enter the result as a decimal (rounded to at least 3 places). Free military turbotax But do not enter an amount greater than 1. Free military turbotax 00 10. Free military turbotax 0. Free military turbotax 321   11. Free military turbotax   Gain allocated to nonqualified use. Free military turbotax (Line 7 multiplied by line 10) 11. Free military turbotax 60,990   12. Free military turbotax   Gain eligible for exclusion. Free military turbotax Subtract line 11 from line 7 12. Free military turbotax 129,010   13. Free military turbotax   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). Free military turbotax  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. Free military turbotax If you do  not qualify to exclude gain, enter -0- 13. Free military turbotax 250,000   14. Free military turbotax   Exclusion. Free military turbotax Enter the smaller of line 12 or line 13 14. Free military turbotax 129,010   15. Free military turbotax   Taxable gain. Free military turbotax Subtract line 14 from line 5. Free military turbotax Report your taxable gain as described under Reporting the Sale . Free military turbotax If the amount on line 6 is more than zero, complete line 16 15. Free military turbotax 70,990   16. Free military turbotax   Enter the smaller of line 6 or line 15. Free military turbotax Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. Free military turbotax 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. Free military turbotax 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. Free military turbotax In addition, you do not need to report the sale of the business or rental part on Form 4797. Free military turbotax This is true whether or not you were entitled to claim any depreciation. Free military turbotax However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. Free military turbotax See Depreciation after May 6, 1997, earlier. Free military turbotax Example 1. Free military turbotax Ray sold his main home in 2013 at a $30,000 gain. Free military turbotax He has no gains or losses from the sale of property other than the gain from the sale of his home. Free military turbotax He meets the ownership and use tests to exclude the gain from his income. Free military turbotax However, he used part of the home as a business office in 2012 and claimed $500 depreciation. Free military turbotax 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. Free military turbotax In addition, he does not have to report any part of the gain on Form 4797. Free military turbotax Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. Free military turbotax He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). Free military turbotax Example 2. Free military turbotax 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. Free military turbotax Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. Free military turbotax 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. Free military turbotax Examples are: A working farm on which your house was located, A duplex in w