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H&r Block 1040x Online

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H&r Block 1040x Online

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

H&r block 1040x online 6. H&r block 1040x online   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. H&r block 1040x online Reporting Tips to Your EmployerElectronic tip statement. H&r block 1040x online Final report. H&r block 1040x online Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. H&r block 1040x online All tips you receive are income and are subject to federal income tax. H&r block 1040x online You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. H&r block 1040x online The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. H&r block 1040x online Reporting your tip income correctly is not difficult. H&r block 1040x online You must do three things. H&r block 1040x online Keep a daily tip record. H&r block 1040x online Report tips to your employer. H&r block 1040x online Report all your tips on your income tax return. H&r block 1040x online  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. H&r block 1040x online This chapter will also show you how to treat allocated tips. H&r block 1040x online For information on special tip programs and agreements, see Publication 531. H&r block 1040x online Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. H&r block 1040x online   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. H&r block 1040x online How to keep a daily tip record. H&r block 1040x online   There are two ways to keep a daily tip record. H&r block 1040x online You can either: Write information about your tips in a tip diary, or Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips. H&r block 1040x online You should keep your daily tip record with your tax or other personal records. H&r block 1040x online You must keep your records for as long as they are important for administration of the federal tax law. H&r block 1040x online For information on how long to keep records, see How long to keep records in chapter 1. H&r block 1040x online    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. H&r block 1040x online To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. H&r block 1040x online Also, Publication 1244 is available online at www. H&r block 1040x online irs. H&r block 1040x online gov/pub/irs-pdf/p1244. H&r block 1040x online pdf. H&r block 1040x online Publication 1244 includes a 1-year supply of Form 4070A. H&r block 1040x online Each day, write in the information asked for on the form. H&r block 1040x online   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. H&r block 1040x online Although you do not report these tips to your employer, you must report them on your tax return. H&r block 1040x online   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). H&r block 1040x online Then, each workday, write the date and the following information. H&r block 1040x online Cash tips you get directly from customers or from other employees. H&r block 1040x online Tips from credit and debit card charge customers that your employer pays you. H&r block 1040x online The value of any noncash tips you get, such as tickets, passes, or other items of value. H&r block 1040x online The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. H&r block 1040x online Electronic tip record. H&r block 1040x online   You can use an electronic system provided by your employer to record your daily tips. H&r block 1040x online If you do, you must receive and keep a paper copy of this record. H&r block 1040x online Service charges. H&r block 1040x online    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. H&r block 1040x online This is part of your wages, not a tip. H&r block 1040x online See examples below. H&r block 1040x online Example 1. H&r block 1040x online Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. H&r block 1040x online Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. H&r block 1040x online Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. H&r block 1040x online Do not include the 18% charge in your tip diary. H&r block 1040x online Service charges that are paid to you are considered wages, not tips. H&r block 1040x online Example 2. H&r block 1040x online Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. H&r block 1040x online David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. H&r block 1040x online Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. H&r block 1040x online Be sure to include this amount in your tip diary. H&r block 1040x online Reporting Tips to Your Employer Why report tips to your employer. H&r block 1040x online   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). H&r block 1040x online What tips to report. H&r block 1040x online   Report to your employer only cash, check, and debit and credit card tips you receive. H&r block 1040x online   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. H&r block 1040x online   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. H&r block 1040x online Do not report to your employer any portion of the tips you receive that you pass on to other employees. H&r block 1040x online However, you must report tips you receive from other employees. H&r block 1040x online    Do not report the value of any noncash tips, such as tickets or passes, to your employer. H&r block 1040x online You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. H&r block 1040x online How to report. H&r block 1040x online    If your employer does not give you any other way to report tips, you can use Form 4070. H&r block 1040x online Fill in the information asked for on the form, sign and date the form, and give it to your employer. H&r block 1040x online To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. H&r block 1040x online   If you do not use Form 4070, give your employer a statement with the following information. H&r block 1040x online Your name, address, and social security number. H&r block 1040x online Your employer's name, address, and business name (if it is different from your employer's name). H&r block 1040x online The month (or the dates of any shorter period) in which you received tips. H&r block 1040x online The total tips required to be reported for that period. H&r block 1040x online You must sign and date the statement. H&r block 1040x online Be sure to keep a copy with your tax or other personal records. H&r block 1040x online   Your employer may require you to report your tips more than once a month. H&r block 1040x online However, the statement cannot cover a period of more than 1 calendar month. H&r block 1040x online Electronic tip statement. H&r block 1040x online   Your employer can have you furnish your tip statements electronically. H&r block 1040x online When to report. H&r block 1040x online   Give your report for each month to your employer by the 10th of the next month. H&r block 1040x online If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. H&r block 1040x online Example. H&r block 1040x online You must report your tips received in September 2014 by October 10, 2014. H&r block 1040x online Final report. H&r block 1040x online   If your employment ends during the month, you can report your tips when your employment ends. H&r block 1040x online Penalty for not reporting tips. H&r block 1040x online   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. H&r block 1040x online (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. H&r block 1040x online ) The penalty amount is in addition to the taxes you owe. H&r block 1040x online   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. H&r block 1040x online To do so, attach a statement to your return explaining why you did not report them. H&r block 1040x online Giving your employer money for taxes. H&r block 1040x online   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. H&r block 1040x online If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. H&r block 1040x online   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. H&r block 1040x online All taxes on your regular pay. H&r block 1040x online Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. H&r block 1040x online Federal, state, and local income taxes on your reported tips. H&r block 1040x online    Any taxes that remain unpaid can be collected by your employer from your next paycheck. H&r block 1040x online If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. H&r block 1040x online See Publication 505, Tax Withholding and Estimated Tax, for more information. H&r block 1040x online    Uncollected taxes. H&r block 1040x online You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. H&r block 1040x online These uncollected taxes will be shown on your 2013 Form W-2. H&r block 1040x online See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. H&r block 1040x online Reporting Tips on Your Tax Return How to report tips. H&r block 1040x online    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. H&r block 1040x online What tips to report. H&r block 1040x online   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. H&r block 1040x online Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. H&r block 1040x online Add to the amount in box 1 only the tips you did not report to your employer. H&r block 1040x online    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. H&r block 1040x online    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. H&r block 1040x online   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. H&r block 1040x online Cash and charge tips you received that totaled less than $20 for any month. H&r block 1040x online The value of noncash tips, such as tickets, passes, or other items of value. H&r block 1040x online Example. H&r block 1040x online Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. H&r block 1040x online Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. H&r block 1040x online He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. H&r block 1040x online Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. H&r block 1040x online He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. H&r block 1040x online Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. H&r block 1040x online    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. H&r block 1040x online To report these taxes, you must file a return even if you would not otherwise have to file. H&r block 1040x online You must use Form 1040. H&r block 1040x online (You cannot file Form 1040EZ or Form 1040A. H&r block 1040x online )    Use Form 4137 to figure social security and Medicare taxes. H&r block 1040x online Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. H&r block 1040x online Use Form 8959 to figure Additional Medicare Tax. H&r block 1040x online    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. H&r block 1040x online To get railroad retirement credit, you must report tips to your employer. H&r block 1040x online Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. H&r block 1040x online   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. H&r block 1040x online For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. H&r block 1040x online   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). H&r block 1040x online You must report these amounts as additional tax on your return. H&r block 1040x online Unlike the uncollected portion of the regular (1. H&r block 1040x online 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. H&r block 1040x online    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. H&r block 1040x online You must report these taxes on Form 1040, line 60. H&r block 1040x online See the instructions for Form 1040, line 60. H&r block 1040x online (You cannot file Form 1040EZ or Form 1040A. H&r block 1040x online ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. H&r block 1040x online They are not included in box 1 with your wages and reported tips. H&r block 1040x online If box 8 is blank, this discussion does not apply to you. H&r block 1040x online What are allocated tips. H&r block 1040x online   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. H&r block 1040x online Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. H&r block 1040x online No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. H&r block 1040x online How were your allocated tips figured. H&r block 1040x online   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). H&r block 1040x online Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. H&r block 1040x online For information about the exact allocation method used, ask your employer. H&r block 1040x online Must you report your allocated tips on your tax return. H&r block 1040x online   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. H&r block 1040x online Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. H&r block 1040x online Add to the amount in box 1 only the tips you did not report to your employer. H&r block 1040x online This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. H&r block 1040x online   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. H&r block 1040x online How to report allocated tips. H&r block 1040x online   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. H&r block 1040x online (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. H&r block 1040x online )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. H&r block 1040x online Complete Form 4137, and include the allocated tips on line 1 of the form. H&r block 1040x online See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. H&r block 1040x online Prev  Up  Next   Home   More Online Publications