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Free online tax extension 12. Free online tax extension   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. Free online tax extension Name change. Free online tax extension Penalty for underpayment of estimated tax. Free online tax extension Who Must Pay Self-Employment Tax?Limited partner. Free online tax extension Community property. Free online tax extension Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. Free online tax extension  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. Free online tax extension 4% to 12. Free online tax extension 4%. Free online tax extension The Medicare part of the tax remains at 2. Free online tax extension 9%. Free online tax extension As a result, the self-employment tax is increased from 13. Free online tax extension 3% to 15. Free online tax extension 3%. Free online tax extension Additional Medicare Tax. Free online tax extension . Free online tax extension  For tax years beginning in 2013, a 0. Free online tax extension 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. Free online tax extension Use Form 8959, Additional Medicare Tax, to figure this tax. Free online tax extension For more information, see the Instructions for Form 8959. Free online tax extension Maximum net earnings. Free online tax extension  The maximum net self-employment earnings subject to the social security part (12. Free online tax extension 4%) of the self-employment tax increased to $113,700 for 2013. Free online tax extension There is no maximum limit on earnings subject to the Medicare part (2. Free online tax extension 9%). Free online tax extension What's New for 2014 Maximum net earnings. Free online tax extension  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. Free online tax extension Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Free online tax extension It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. Free online tax extension You usually have to pay SE tax if you are self-employed. Free online tax extension You are usually self-employed if you operate your own farm on land you either own or rent. Free online tax extension You have to figure SE tax on Schedule SE (Form 1040). Free online tax extension Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. Free online tax extension See chapter 13 for information on employment taxes. Free online tax extension Self-employment tax rate. Free online tax extension   For tax years beginning in 2013, the self-employment tax rate is 15. Free online tax extension 3%. Free online tax extension The rate consists of two parts: 12. Free online tax extension 4% for social security (old-age, survivors, and disability insurance) and 2. Free online tax extension 9% for Medicare (hospital insurance). Free online tax extension Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. Free online tax extension S. Free online tax extension Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. Free online tax extension S. Free online tax extension Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. Free online tax extension See chapter 16 for information about getting publications and forms. Free online tax extension Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. Free online tax extension Your payments of SE tax contribute to your coverage under the social security system. Free online tax extension Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Free online tax extension How to become insured under social security. Free online tax extension   You must be insured under the social security system before you begin receiving social security benefits. Free online tax extension You are insured if you have the required number of credits (also called quarters of coverage). Free online tax extension Earning credits in 2013. Free online tax extension   You can earn a maximum of four credits per year. Free online tax extension For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. Free online tax extension You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. Free online tax extension It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. Free online tax extension For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. Free online tax extension socialsecurity. Free online tax extension gov. Free online tax extension Making false statements to get or to increase social security benefits may subject you to penalties. Free online tax extension The Social Security Administration (SSA) time limit for posting self-employment earnings. Free online tax extension   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Free online tax extension    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. Free online tax extension The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. Free online tax extension How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). Free online tax extension This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. Free online tax extension An ITIN does not entitle you to social security benefits. Free online tax extension Obtaining an ITIN does not change your immigration or employment status under U. Free online tax extension S. Free online tax extension law. Free online tax extension Obtaining a social security number. Free online tax extension   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. Free online tax extension The application is also available in Spanish. Free online tax extension You can get this form at any Social Security office or by calling 1-800-772-1213. Free online tax extension    You can also download Form SS-5 from the Social Security Administration website at  www. Free online tax extension socialsecurity. Free online tax extension gov. Free online tax extension   If you have a social security number from the time you were an employee, you must use that number. Free online tax extension Do not apply for a new one. Free online tax extension Replacing a lost social security card. Free online tax extension   If you have a number but lost your card, file Form SS-5. Free online tax extension You will get a new card showing your original number, not a new number. Free online tax extension Name change. Free online tax extension   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. Free online tax extension Obtaining an individual taxpayer identification number. Free online tax extension   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. Free online tax extension To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. Free online tax extension You can get this form by calling 1-800-829-3676. Free online tax extension For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. Free online tax extension Form W-7 and Publication 1915 are also available in Spanish. Free online tax extension    You can also download Form W-7 from the IRS website at IRS. Free online tax extension gov. Free online tax extension Paying estimated tax. Free online tax extension   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. Free online tax extension You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. Free online tax extension Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. Free online tax extension   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. Free online tax extension For more information about estimated tax for farmers, see chapter 15. Free online tax extension Penalty for underpayment of estimated tax. Free online tax extension   You may have to pay a penalty if you do not pay enough estimated tax by its due date. Free online tax extension Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Free online tax extension The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. Free online tax extension Aliens. Free online tax extension   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. Free online tax extension S. Free online tax extension citizens. Free online tax extension Nonresident aliens are not subject to self-employment tax. Free online tax extension However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. Free online tax extension S. Free online tax extension residents for self-employment tax purposes. Free online tax extension For more information on aliens, see Publication 519, U. Free online tax extension S. Free online tax extension Tax Guide for Aliens. Free online tax extension Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. Free online tax extension A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. Free online tax extension Share farmer. Free online tax extension   You are a self-employed farmer under an income-sharing arrangement if both the following apply. Free online tax extension You produce a crop or raise livestock on land belonging to another person. Free online tax extension Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. Free online tax extension Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. Free online tax extension   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. Free online tax extension This will depend on whether the landowner has the right to direct or control your performance of services. Free online tax extension Example. Free online tax extension A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. Free online tax extension Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. Free online tax extension The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. Free online tax extension The share farmer is provided a house in which to live. Free online tax extension The landowner and the share farmer decide on a cropping plan. Free online tax extension The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. Free online tax extension The tax treatment of the landowner is discussed later under Landlord Participation in Farming. Free online tax extension Contract farming. Free online tax extension   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. Free online tax extension Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. Free online tax extension 4-H Club or FFA project. Free online tax extension   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. Free online tax extension Report the net income as “Other income” on line 21 of Form 1040. Free online tax extension If necessary, attach a statement showing the gross income and expenses. Free online tax extension The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. Free online tax extension Such a project is generally not considered a trade or business. Free online tax extension Partners in a partnership. Free online tax extension   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. Free online tax extension Limited partner. Free online tax extension   If you are a limited partner, your partnership income is generally not subject to SE tax. Free online tax extension However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). Free online tax extension Business Owned and Operated by Spouses. Free online tax extension   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. Free online tax extension You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. Free online tax extension Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Free online tax extension Qualified joint venture. Free online tax extension   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Free online tax extension For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. Free online tax extension   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Free online tax extension Each of you must file a separate Schedule F and a separate Schedule SE. Free online tax extension For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). Free online tax extension Spouse employee. Free online tax extension   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. Free online tax extension For more information about employment taxes, see chapter 13. Free online tax extension Community property. Free online tax extension   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. Free online tax extension Do not treat any of your share as self-employment earnings of your spouse. Free online tax extension Figuring Self-Employment Earnings Farmer. Free online tax extension   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. Free online tax extension Partnership income or loss. Free online tax extension   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). Free online tax extension Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). Free online tax extension Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). Free online tax extension   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. Free online tax extension   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. Free online tax extension   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). Free online tax extension   For general information on partnerships, see Publication 541. Free online tax extension More than one business. Free online tax extension   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. Free online tax extension A loss from one business reduces your profit from another business. Free online tax extension However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. Free online tax extension Community property. Free online tax extension   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. Free online tax extension Lost income payments. Free online tax extension   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. Free online tax extension These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. Free online tax extension Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). Free online tax extension A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. Free online tax extension Gain or loss. Free online tax extension   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. Free online tax extension It does not matter whether the disposition is a sale, exchange, or involuntary conversion. Free online tax extension For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. Free online tax extension Investment property. Free online tax extension Depreciable property or other fixed assets used in your trade or business. Free online tax extension Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. Free online tax extension Unharvested standing crops sold with land held more than 1 year. Free online tax extension Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. Free online tax extension   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. Free online tax extension For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. Free online tax extension Wages and salaries. Free online tax extension   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. Free online tax extension   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. Free online tax extension Retired partner. Free online tax extension   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. Free online tax extension The retired partner performs no services for the partnership during the year. Free online tax extension The retired partner is owed only the retirement payments. Free online tax extension The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. Free online tax extension The payments to the retired partner are lifelong periodic payments. Free online tax extension Conservation Reserve Program (CRP) payments. Free online tax extension   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. Free online tax extension You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. Free online tax extension Cost share payments you receive may qualify for the costsharing exclusion. Free online tax extension See Cost-Sharing Exclusion (Improvements), above. Free online tax extension CRP payments are reported to you on Form 1099G. Free online tax extension Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. Free online tax extension See the instructions for Schedule SE (Form 1040). Free online tax extension Self-employed health insurance deduction. Free online tax extension   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). Free online tax extension Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. Free online tax extension However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. Free online tax extension Crop shares. Free online tax extension   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. Free online tax extension Feeding such crop shares to livestock is considered using them. Free online tax extension Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. Free online tax extension Material participation for landlords. Free online tax extension   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. Free online tax extension You do at least three of the following. Free online tax extension Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. Free online tax extension Furnish at least half the tools, equipment, and livestock used in the production activities. Free online tax extension Advise or consult with your tenant. Free online tax extension Inspect the production activities periodically. Free online tax extension You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. Free online tax extension You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. Free online tax extension You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. Free online tax extension These tests may be used as general guides for determining whether you are a material participant. Free online tax extension Example. Free online tax extension Drew Houston agrees to produce a crop on J. Free online tax extension Clarke's cotton farm, with each receiving half the proceeds. Free online tax extension Clarke advises Houston when to plant, spray, and pick the cotton. Free online tax extension During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. Free online tax extension Houston furnishes all labor needed to grow and harvest the crop. Free online tax extension The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. Free online tax extension The income Clarke receives from his cotton farm is included in his self-employment earnings. Free online tax extension Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. Free online tax extension The regular method. Free online tax extension The farm optional method. Free online tax extension The nonfarm optional method. Free online tax extension You must use the regular method unless you are eligible to use one or both of the optional methods. Free online tax extension See Figure 12-1 , shown later. Free online tax extension Figure 12-1. Free online tax extension Can I Use the Optional Methods? Please click here for the text description of the image. Free online tax extension Figure 12–1. Free online tax extension Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. Free online tax extension You want to receive credit for social security benefit coverage. Free online tax extension You incurred child or dependent care expenses for which you could claim a credit. Free online tax extension (An optional method may increase your earned income, which could increase your credit. Free online tax extension ) You are entitled to the earned income credit. Free online tax extension (An optional method may increase your earned income, which could increase your credit. Free online tax extension ) You are entitled to the additional child tax credit. Free online tax extension (An optional method may increase your earned income, which could increase your credit. Free online tax extension ) Effects of using an optional method. Free online tax extension   Using an optional method could increase your SE tax. Free online tax extension Paying more SE tax may result in you getting higher social security disability or retirement benefits. Free online tax extension   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. Free online tax extension   The optional methods may be used only to figure your SE tax. Free online tax extension To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. Free online tax extension Regular Method Multiply your total self-employment earnings by 92. Free online tax extension 35% (. Free online tax extension 9235) to get your net earnings under the regular method. Free online tax extension See Short Schedule SE, line 4, or Long Schedule SE, line 4a. Free online tax extension Net earnings figured using the regular method are also called “actual net earnings. Free online tax extension ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. Free online tax extension You can use this method if you meet either of the following tests. Free online tax extension Your gross farm income is $6,960 or less. Free online tax extension Your net farm profits are less than $5,024. Free online tax extension Gross farm income. Free online tax extension   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). Free online tax extension Net farm profits. Free online tax extension   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). Free online tax extension However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. Free online tax extension For more information, see Partnership income or loss , earlier. Free online tax extension Figuring farm net earnings. Free online tax extension   If you meet either of the two tests explained above, use Table 12-1. Free online tax extension Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. Free online tax extension Table 12-1. Free online tax extension Figuring Farm Net Earnings IF your gross farm income  is. Free online tax extension . Free online tax extension . Free online tax extension THEN your net earnings are equal to. Free online tax extension . Free online tax extension . Free online tax extension $6,960 or less Two-thirds of your gross farm income. Free online tax extension More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. Free online tax extension   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. Free online tax extension Your actual net earnings are your net earnings figured using the regular method, explained earlier. Free online tax extension Example. Free online tax extension Your gross farm income is $540 and your net farm profit is $460. Free online tax extension Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. Free online tax extension 35% of $460). Free online tax extension You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. Free online tax extension Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. Free online tax extension If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. Free online tax extension You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. Free online tax extension For more information about the nonfarm optional method, see Publication 334. Free online tax extension You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. Free online tax extension Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. Free online tax extension You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. Free online tax extension If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. Free online tax extension Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. Free online tax extension Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. Free online tax extension Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. Free online tax extension However, certain taxpayers must use Section B–Long Schedule SE. Free online tax extension Use the chart on page 1 of Schedule SE to find out which one to use. Free online tax extension If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. Free online tax extension Deduction for employer-equivalent portion of self-employment tax. Free online tax extension   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. Free online tax extension This deduction only affects your income tax. Free online tax extension It does not affect either your net earnings from self-employment or your SE tax. Free online tax extension   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. Free online tax extension Joint return. Free online tax extension   Even if you file a joint return, you cannot file a joint Schedule SE. Free online tax extension This is true whether one spouse or both spouses have self-employment earnings. Free online tax extension Your spouse is not considered self-employed just because you are. Free online tax extension If both of you have self-employment earnings, each of you must complete a separate Schedule SE. Free online tax extension However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. Free online tax extension Attach both schedules to the joint return. Free online tax extension If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . Free online tax extension Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Tennessee

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Chattanooga  5740 Uptain Rd.
Chattanooga, TN 37411 

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(423) 855-6460 
Jackson  109 S. Highland
Jackson, TN 38301 

Monday- Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(731) 423-2441 
Johnson City  2513 Wesley St.
Johnson City, TN 37601 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(423) 282-5024 
Knoxville  710 Locust St.
Knoxville, TN 37902 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(865) 545-4794 
Memphis  22 N. Front St.
Memphis, TN 38103 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(901) 544-3243 
Nashville  801 Broadway
Nashville, TN 37203 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(615) 250-5656 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (615) 250-5000 in Nashville or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
801 Broadway, MDP-46
Nashville, TN 37203

Internal Revenue Service
22 N. Front Street, Suite 400
Memphis, TN 38103

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The Free Online Tax Extension

Free online tax extension 15. Free online tax extension   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. Free online tax extension More information. Free online tax extension Special SituationsException for sales to related persons. Free online tax extension Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. Free online tax extension  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. Free online tax extension See Mortgage ending early under Points in chapter 23. Free online tax extension Introduction This chapter explains the tax rules that apply when you sell your main home. Free online tax extension In most cases, your main home is the one in which you live most of the time. Free online tax extension If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). Free online tax extension See Excluding the Gain , later. Free online tax extension Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. Free online tax extension If you have gain that cannot be excluded, it is taxable. Free online tax extension Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). Free online tax extension You may also have to complete Form 4797, Sales of Business Property. Free online tax extension See Reporting the Sale , later. Free online tax extension If you have a loss on the sale, you generally cannot deduct it on your return. Free online tax extension However, you may need to report it. Free online tax extension See Reporting the Sale , later. Free online tax extension The following are main topics in this chapter. Free online tax extension Figuring gain or loss. Free online tax extension Basis. Free online tax extension Excluding the gain. Free online tax extension Ownership and use tests. Free online tax extension Reporting the sale. Free online tax extension Other topics include the following. Free online tax extension Business use or rental of home. Free online tax extension Recapturing a federal mortgage subsidy. Free online tax extension Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. Free online tax extension ” 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 online tax extension To exclude gain under the rules of this chapter, 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 online tax extension Land. Free online tax extension   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 online tax extension However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. Free online tax extension See Vacant land under Main Home in Publication 523 for more information. Free online tax extension Example. Free online tax extension You buy a piece of land and move your main home to it. Free online tax extension Then you sell the land on which your main home was located. Free online tax extension This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Free online tax extension More than one home. Free online tax extension   If you have more than one home, you can exclude gain only from the sale of your main home. Free online tax extension You must include in income gain from the sale of any other home. Free online tax extension If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. Free online tax extension Example 1. Free online tax extension You own two homes, one in New York and one in Florida. Free online tax extension 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 online tax extension In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Free online tax extension 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 online tax extension Example 2. Free online tax extension You own a house, but you live in another house that you rent. Free online tax extension The rented house is your main home. Free online tax extension Example 3. Free online tax extension You own two homes, one in Virginia and one in New Hampshire. Free online tax extension In 2009 and 2010, you lived in the Virginia home. Free online tax extension In 2011 and 2012, you lived in the New Hampshire home. Free online tax extension In 2013, you lived again in the Virginia home. Free online tax extension Your main home in 2009, 2010, and 2013 is the Virginia home. Free online tax extension Your main home in 2011 and 2012 is the New Hampshire home. Free online tax extension You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Free online tax extension Property used partly as your main home. Free online tax extension   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 online tax extension For details, see Business Use or Rental of Home , later. Free online tax extension 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 online tax extension Subtract the adjusted basis from the amount realized to get your gain or loss. Free online tax extension     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. Free online tax extension 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 online tax extension Payment by employer. Free online tax extension   You may have to sell your home because of a job transfer. Free online tax extension 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 online tax extension 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. Free online tax extension Option to buy. Free online tax extension   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 online tax extension If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Free online tax extension Report this amount on Form 1040, line 21. Free online tax extension Form 1099-S. Free online tax extension   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. Free online tax extension   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 online tax extension Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Free online tax extension Amount Realized The amount realized is the selling price minus selling expenses. Free online tax extension Selling expenses. Free online tax extension   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Free online tax extension ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Free online tax extension This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Free online tax extension For information on how to figure your home's adjusted basis, see Determining Basis , later. Free online tax extension Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Free online tax extension Gain on sale. Free online tax extension   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. Free online tax extension Loss on sale. Free online tax extension   If the amount realized is less than the adjusted basis, the difference is a loss. Free online tax extension A loss on the sale of your main home cannot be deducted. Free online tax extension Jointly owned home. Free online tax extension   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 online tax extension Separate returns. Free online tax extension   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Free online tax extension Your ownership interest is generally determined by state law. Free online tax extension Joint owners not married. Free online tax extension   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 online tax extension Each of you applies the rules discussed in this chapter on an individual basis. Free online tax extension Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Free online tax extension Foreclosure or repossession. Free online tax extension   If your home was foreclosed on or repossessed, you have a disposition. Free online tax extension See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. Free online tax extension Abandonment. Free online tax extension   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Free online tax extension Trading (exchanging) homes. Free online tax extension   If you trade your old home for another home, treat the trade as a sale and a purchase. Free online tax extension Example. Free online tax extension You owned and lived in a home with an adjusted basis of $41,000. Free online tax extension 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 online tax extension This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). Free online tax extension 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 online tax extension Transfer to spouse. Free online tax extension   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. Free online tax extension This is true even if you receive cash or other consideration for the home. Free online tax extension As a result, the rules in this chapter do not apply. Free online tax extension More information. Free online tax extension   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. Free online tax extension Involuntary conversion. Free online tax extension   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 online tax extension 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 . Free online tax extension Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Free online tax extension Your basis in your home is determined by how you got the home. Free online tax extension Generally, your basis is its cost if you bought it or built it. Free online tax extension If you got it in some other way (inheritance, gift, etc. Free online tax extension ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Free online tax extension While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Free online tax extension 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 online tax extension See Adjusted Basis , later. Free online tax extension You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. Free online tax extension Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Free online tax extension Purchase. Free online tax extension   If you bought your home, your basis is its cost to you. Free online tax extension This includes the purchase price and certain settlement or closing costs. Free online tax extension 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 online tax extension If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. Free online tax extension Settlement fees or closing costs. Free online tax extension   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Free online tax extension 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 online tax extension 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 online tax extension    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. Free online tax extension It also lists some settlement costs that cannot be included in basis. Free online tax extension   Also see Publication 523 for additional items and a discussion of basis other than cost. Free online tax extension Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Free online tax extension To figure your adjusted basis, you can use Worksheet 1 in Publication 523. Free online tax extension Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Free online tax extension Increases to basis. Free online tax extension   These include the following. Free online tax extension Additions and other improvements that have a useful life of more than 1 year. Free online tax extension Special assessments for local improvements. Free online tax extension Amounts you spent after a casualty to restore damaged property. Free online tax extension Improvements. Free online tax extension   These add to the value of your home, prolong its useful life, or adapt it to new uses. Free online tax extension You add the cost of additions and other improvements to the basis of your property. Free online tax extension   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. Free online tax extension An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. Free online tax extension Repairs. Free online tax extension   These maintain your home in good condition but do not add to its value or prolong its life. Free online tax extension You do not add their cost to the basis of your property. Free online tax extension   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. Free online tax extension Decreases to basis. Free online tax extension   These include the following. Free online tax extension Discharge of qualified principal residence indebtedness that was excluded from income. Free online tax extension Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Free online tax extension For details, see Publication 4681. Free online tax extension Gain you postponed from the sale of a previous home before May 7, 1997. Free online tax extension Deductible casualty losses. Free online tax extension Insurance payments you received or expect to receive for casualty losses. Free online tax extension Payments you received for granting an easement or right-of-way. Free online tax extension Depreciation allowed or allowable if you used your home for business or rental purposes. Free online tax extension Energy-related credits allowed for expenditures made on the residence. Free online tax extension (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Free online tax extension ) Adoption credit you claimed for improvements added to the basis of your home. Free online tax extension Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Free online tax extension 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 online tax extension 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 online tax extension District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). Free online tax extension General sales taxes (allowed beginning 2004 and ending before 2014) 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 online tax extension Discharges of qualified principal residence indebtedness. Free online tax extension   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Free online tax extension This exclusion applies to discharges made after 2006 and before 2014. Free online tax extension If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. Free online tax extension   File Form 982 with your tax return. Free online tax extension See the form's instructions for detailed information. Free online tax extension Recordkeeping. Free online tax extension You should keep records to prove your home's adjusted basis. Free online tax extension 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 online tax extension 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 online tax extension Keep records proving the basis of both homes as long as they are needed for tax purposes. Free online tax extension 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 report 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 online tax extension 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 online tax extension 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 online tax extension To qualify, you must meet the ownership and use tests described later. Free online tax extension 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 online tax extension You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. Free online tax extension 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 online tax extension See Publication 505, Tax Withholding and Estimated Tax. Free online tax extension 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 online tax extension You meet the ownership test. Free online tax extension You meet the use test. Free online tax extension During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Free online tax extension For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. Free online tax extension 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 online tax extension Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Free online tax extension 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 online tax extension Exception. Free online tax extension   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 online tax extension However, the maximum amount you may be able to exclude will be reduced. Free online tax extension See Reduced Maximum Exclusion , later. Free online tax extension Example 1—home owned and occupied for at least 2 years. Free online tax extension Mya bought and moved into her main home in September 2011. Free online tax extension She sold the home at a gain in October 2013. Free online tax extension 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 online tax extension She meets the ownership and use tests. Free online tax extension Example 2—ownership test met but use test not met. Free online tax extension Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Free online tax extension He later sold the home for a gain. Free online tax extension He owned the home during the entire 5-year period ending on the date of sale. Free online tax extension He meets the ownership test but not the use test. Free online tax extension He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Free online tax extension 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 online tax extension 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 online tax extension Temporary absence. Free online tax extension   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 online tax extension The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Free online tax extension Example 1. Free online tax extension David Johnson, who is single, bought and moved into his home on February 1, 2011. Free online tax extension Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Free online tax extension David sold the house on March 1, 2013. Free online tax extension Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. Free online tax extension 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 online tax extension Example 2. Free online tax extension Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. Free online tax extension He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. Free online tax extension On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. Free online tax extension Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Free online tax extension He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. Free online tax extension Ownership and use tests met at different times. Free online tax extension   You can meet the ownership and use tests during different 2-year periods. Free online tax extension However, you must meet both tests during the 5-year period ending on the date of the sale. Free online tax extension Example. Free online tax extension Beginning in 2002, Helen Jones lived in a rented apartment. Free online tax extension The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Free online tax extension In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Free online tax extension On July 12, 2013, while still living in her daughter's home, she sold her condominium. Free online tax extension 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 online tax extension She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Free online tax extension 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 online tax extension 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 online tax extension Cooperative apartment. Free online tax extension   If you sold stock as a tenant-stockholder 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 entitles you to occupy as your main home for at least 2 years. Free online tax extension Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Free online tax extension Exception for individuals with a disability. Free online tax extension   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 online tax extension 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 online tax extension 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 online tax extension Previous home destroyed or condemned. Free online tax extension   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 online tax extension This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. Free online tax extension 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 online tax extension Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Free online tax extension   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” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Free online tax extension 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" or as an enrolled volunteer or volunteer leader of the Peace Corps. Free online tax extension 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 online tax extension   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 online tax extension For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. Free online tax extension 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 online tax extension (But see Special rules for joint returns , next. Free online tax extension ) Special rules for joint returns. Free online tax extension   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 online tax extension You are married and file a joint return for the year. Free online tax extension Either you or your spouse meets the ownership test. Free online tax extension Both you and your spouse meet the use test. Free online tax extension 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 online tax extension 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 online tax extension For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Free online tax extension Example 1—one spouse sells a home. Free online tax extension Emily sells her home in June 2013 for a gain of $300,000. Free online tax extension She marries Jamie later in the year. Free online tax extension She meets the ownership and use tests, but Jamie does not. Free online tax extension Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Free online tax extension The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Free online tax extension Example 2—each spouse sells a home. Free online tax extension 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 online tax extension He meets the ownership and use tests on his home, but Emily does not. Free online tax extension Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Free online tax extension However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Free online tax extension Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Free online tax extension 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 online tax extension Sale of main home by surviving spouse. Free online tax extension   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 online tax extension   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 online tax extension The sale or exchange took place after 2008. Free online tax extension The sale or exchange took place no more than 2 years after the date of death of your spouse. Free online tax extension You have not remarried. Free online tax extension You and your spouse met the use test at the time of your spouse's death. Free online tax extension You or your spouse met the ownership test at the time of your spouse's death. Free online tax extension Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Free online tax extension Example. Free online tax extension   Harry owned and used a house as his main home since 2009. Free online tax extension Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. Free online tax extension Harry died on August 15, 2013, and Wilma inherited the property. Free online tax extension Wilma sold the property on September 3, 2013, at which time she had not remarried. Free online tax extension 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 online tax extension Home transferred from spouse. Free online tax extension   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 online tax extension Use of home after divorce. Free online tax extension   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 online tax extension 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 online tax extension 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 online tax extension 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 online tax extension A change in place of employment. Free online tax extension Health. Free online tax extension Unforeseen circumstances. Free online tax extension Unforeseen circumstances. Free online tax extension   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 your main home. Free online tax extension   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. Free online tax extension 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. Free online tax extension But you must meet the ownership and use tests. Free online tax extension Periods of nonqualified use. Free online tax extension   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. Free online tax extension Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. Free online tax extension Exceptions. Free online tax extension   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 online tax extension The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. Free online tax extension Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. Free online tax extension Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. Free online tax extension Calculation. Free online tax extension   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain 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, in Publication 523. Free online tax extension Example 1. Free online tax extension On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Free online tax extension 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 online tax extension The house was rented from June 1, 2009, to March 31, 2011. Free online tax extension Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Free online tax extension 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 online tax extension 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 online tax extension Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 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 online tax extension Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. Free online tax extension 321. Free online tax extension To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. Free online tax extension 321. Free online tax extension Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. Free online tax extension Example 2. Free online tax extension William owned and used a house as his main home from 2007 through 2010. Free online tax extension On January 1, 2011, he moved to another state. Free online tax extension He rented his house from that date until April 30, 2013, when he sold it. Free online tax extension 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 online tax extension He must report the sale on Form 4797 because it was rental property at the time of sale. Free online tax extension 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 online tax extension Because he met the ownership and use tests, he can exclude gain up to $250,000. Free online tax extension 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 online tax extension Depreciation after May 6, 1997. Free online tax extension   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 online tax extension 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 online tax extension See Publication 544 for more information. Free online tax extension Property used partly for business or rental. Free online tax extension   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. Free online tax extension Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. Free online tax extension If any of these conditions apply, report the entire gain or loss. Free online tax extension For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. Free online tax extension If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). Free online tax extension See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. Free online tax extension Installment sale. Free online tax extension    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. Free online tax extension These sales are called “installment sales. Free online tax extension ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. Free online tax extension You may be able to report the part of the gain you cannot exclude on the installment basis. Free online tax extension    Use Form 6252, Installment Sale Income, to report the sale. Free online tax extension Enter your exclusion on line 15 of Form 6252. Free online tax extension Seller-financed mortgage. Free online tax extension   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. Free online tax extension You must separately report as interest income the interest you receive as part of each payment. Free online tax extension If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). Free online tax extension The buyer must give you his or her SSN, and you must give the buyer your SSN. Free online tax extension Failure to meet these requirements may result in a $50 penalty for each failure. Free online tax extension If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. Free online tax extension More information. Free online tax extension   For more information on installment sales, see Publication 537, Installment Sales. Free online tax extension Special Situations The situations that follow may affect your exclusion. Free online tax extension Sale of home acquired in a like-kind exchange. Free online tax extension   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. Free online tax extension Gain from a like-kind exchange is not taxable at the time of the exchange. Free online tax extension This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. Free online tax extension To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. Free online tax extension For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. Free online tax extension Home relinquished in a like-kind exchange. Free online tax extension   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. Free online tax extension Expatriates. Free online tax extension   You cannot claim the exclusion if the expatriation tax applies to you. Free online tax extension The expatriation tax applies to certain U. Free online tax extension S. Free online tax extension citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). Free online tax extension For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. Free online tax extension S. Free online tax extension Tax Guide for Aliens. Free online tax extension Home destroyed or condemned. Free online tax extension   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. Free online tax extension   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. Free online tax extension Sale of remainder interest. Free online tax extension   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. Free online tax extension If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. Free online tax extension Exception for sales to related persons. Free online tax extension   You cannot exclude gain from the sale of a remainder interest in your home to a related person. Free online tax extension Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Free online tax extension ), and lineal descendants (children, grandchildren, etc. Free online tax extension ). Free online tax extension Related persons also include certain corporations, partnerships, trusts, and exempt organizations. Free online tax extension Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Free online tax extension You recapture the benefit by increasing your federal income tax for the year of the sale. Free online tax extension You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. Free online tax extension Loans subject to recapture rules. Free online tax extension   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. Free online tax extension The recapture also applies to assumptions of these loans. Free online tax extension When recapture applies. Free online tax extension   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. Free online tax extension You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. Free online tax extension Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). Free online tax extension When recapture does not apply. Free online tax extension   Recapture does not apply in any of the following situations. Free online tax extension Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. Free online tax extension Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. Free online tax extension For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. Free online tax extension Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Free online tax extension The home is disposed of as a result of your death. Free online tax extension You dispose of the home more than 9 years after the date you closed your mortgage loan. Free online tax extension You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. Free online tax extension You dispose of the home at a loss. Free online tax extension Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. Free online tax extension The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. Free online tax extension For more information, see Replacement Period in Publication 547. Free online tax extension You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). Free online tax extension Notice of amounts. Free online tax extension   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. Free online tax extension How to figure and report the recapture. Free online tax extension    The recapture tax is figured on Form 8828. Free online tax extension If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. Free online tax extension Attach Form 8828 to your Form 1040. Free online tax extension For more information, see Form 8828 and its instructions. Free online tax extension Prev  Up  Next   Home   More Online Publications