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Free State And Federal E File

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Free State And Federal E File

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

Free state and federal e file Publication 972 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. Free state and federal e file Tax questions. Free state and federal e file Future Developments For the latest information about developments related to Publication 972, such as legislation enacted after it was published, go to www. Free state and federal e file irs. Free state and federal e file gov/pub972. Free state and federal e file Reminder Photographs of missing children. Free state and federal e file  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free state and federal e file Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free state and federal e file You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free state and federal e file Introduction The purpose of this publication is: To figure the child tax credit you claim on Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48; and To figure the amount of earned income you enter on line 4a of Schedule 8812 (Form 1040A or 1040), Child Tax Credit. Free state and federal e file This publication is intended primarily for individuals sent here by the instructions to Forms 1040, 1040A, or 1040NR, or Schedule 8812. Free state and federal e file Even if you were not sent here by the instructions to one of the forms or the schedule, you can still choose to use this publication to figure your credit. Free state and federal e file However, most individuals can use a simpler worksheet in their tax form instructions. Free state and federal e file If you were sent here from your Form 1040, Form 1040A, or Form 1040NR instructions. Free state and federal e file   Complete the Child Tax Credit Worksheet , later in this publication. Free state and federal e file If you were sent here from your Schedule 8812 instructions. Free state and federal e file   Complete the 1040 and 1040NR Filers — Earned Income Worksheet , later in this publication. Free state and federal e file If you have not read your Form 1040, Form 1040A, or Form 1040NR instructions. Free state and federal e file   Read the explanation of who must use this publication next. Free state and federal e file If you find that you are not required to use this publication to figure your child tax credit, you can use the simpler worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions to figure your credit. Free state and federal e file Who must use this publication. Free state and federal e file   If you answer “Yes” to either of the following questions, you must use this publication to figure your child tax credit. Free state and federal e file Are you excluding income from Puerto Rico or filing any of the following forms? Form 2555 or 2555-EZ (relating to foreign earned income). Free state and federal e file Form 4563 (exclusion of income for residents of American Samoa). Free state and federal e file Are you claiming any of the following credits? Mortgage interest credit, Form 8396. Free state and federal e file Adoption credit, Form 8839. Free state and federal e file Residential energy efficient property credit, Form 5695, Part I. Free state and federal e file District of Columbia first-time homebuyer credit, Form 8859. Free state and federal e file Comments and suggestions. Free state and federal e file   We welcome your comments about this publication and your suggestions for future editions. Free state and federal e file   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free state and federal e file NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free state and federal e file Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free state and federal e file   You can send your comments from www. Free state and federal e file irs. Free state and federal e file gov/formspubs/. Free state and federal e file Click on “More Information” and then on “Comment on Tax Forms and Publications. Free state and federal e file ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free state and federal e file Ordering forms and publications. Free state and federal e file   Visit www. Free state and federal e file irs. Free state and federal e file gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free state and federal e file Internal Revenue Service 1201 N. Free state and federal e file Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free state and federal e file   If you have a tax question, check the information available on IRS. Free state and federal e file gov or call 1-800-829-1040. Free state and federal e file We cannot answer tax questions sent to either of the above addresses. Free state and federal e file Prev  Up  Next   Home   More Online Publications