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Tax online free 15. Tax online free   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. Tax online free More information. Tax online free Special SituationsException for sales to related persons. Tax online free Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. Tax online free  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. Tax online free See Mortgage ending early under Points in chapter 23. Tax online free Introduction This chapter explains the tax rules that apply when you sell your main home. Tax online free In most cases, your main home is the one in which you live most of the time. Tax online free If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). Tax online free See Excluding the Gain , later. Tax online free Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. Tax online free If you have gain that cannot be excluded, it is taxable. Tax online free Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). Tax online free You may also have to complete Form 4797, Sales of Business Property. Tax online free See Reporting the Sale , later. Tax online free If you have a loss on the sale, you generally cannot deduct it on your return. Tax online free However, you may need to report it. Tax online free See Reporting the Sale , later. Tax online free The following are main topics in this chapter. Tax online free Figuring gain or loss. Tax online free Basis. Tax online free Excluding the gain. Tax online free Ownership and use tests. Tax online free Reporting the sale. Tax online free Other topics include the following. Tax online free Business use or rental of home. Tax online free Recapturing a federal mortgage subsidy. Tax online free Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. Tax online free ” 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. Tax online free To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Tax online free Land. Tax online free   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. Tax online free However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. Tax online free See Vacant land under Main Home in Publication 523 for more information. Tax online free Example. Tax online free You buy a piece of land and move your main home to it. Tax online free Then you sell the land on which your main home was located. Tax online free This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Tax online free More than one home. Tax online free   If you have more than one home, you can exclude gain only from the sale of your main home. Tax online free You must include in income gain from the sale of any other home. Tax online free If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. Tax online free Example 1. Tax online free You own two homes, one in New York and one in Florida. Tax online free 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. Tax online free In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Tax online free You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Tax online free Example 2. Tax online free You own a house, but you live in another house that you rent. Tax online free The rented house is your main home. Tax online free Example 3. Tax online free You own two homes, one in Virginia and one in New Hampshire. Tax online free In 2009 and 2010, you lived in the Virginia home. Tax online free In 2011 and 2012, you lived in the New Hampshire home. Tax online free In 2013, you lived again in the Virginia home. Tax online free Your main home in 2009, 2010, and 2013 is the Virginia home. Tax online free Your main home in 2011 and 2012 is the New Hampshire home. Tax online free You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Tax online free Property used partly as your main home. Tax online free   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. Tax online free For details, see Business Use or Rental of Home , later. Tax online free 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. Tax online free Subtract the adjusted basis from the amount realized to get your gain or loss. Tax online free     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. Tax online free 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. Tax online free Payment by employer. Tax online free   You may have to sell your home because of a job transfer. Tax online free 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. Tax online free 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. Tax online free Option to buy. Tax online free   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. Tax online free If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Tax online free Report this amount on Form 1040, line 21. Tax online free Form 1099-S. Tax online free   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. Tax online free   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. Tax online free Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Tax online free Amount Realized The amount realized is the selling price minus selling expenses. Tax online free Selling expenses. Tax online free   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Tax online free ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Tax online free This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Tax online free For information on how to figure your home's adjusted basis, see Determining Basis , later. Tax online free Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Tax online free Gain on sale. Tax online free   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. Tax online free Loss on sale. Tax online free   If the amount realized is less than the adjusted basis, the difference is a loss. Tax online free A loss on the sale of your main home cannot be deducted. Tax online free Jointly owned home. Tax online free   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Tax online free Separate returns. Tax online free   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Tax online free Your ownership interest is generally determined by state law. Tax online free Joint owners not married. Tax online free   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. Tax online free Each of you applies the rules discussed in this chapter on an individual basis. Tax online free Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Tax online free Foreclosure or repossession. Tax online free   If your home was foreclosed on or repossessed, you have a disposition. Tax online free See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. Tax online free Abandonment. Tax online free   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Tax online free Trading (exchanging) homes. Tax online free   If you trade your old home for another home, treat the trade as a sale and a purchase. Tax online free Example. Tax online free You owned and lived in a home with an adjusted basis of $41,000. Tax online free 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. Tax online free This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). Tax online free 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). Tax online free Transfer to spouse. Tax online free   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. Tax online free This is true even if you receive cash or other consideration for the home. Tax online free As a result, the rules in this chapter do not apply. Tax online free More information. Tax online free   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. Tax online free Involuntary conversion. Tax online free   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. Tax online free 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 . Tax online free Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Tax online free Your basis in your home is determined by how you got the home. Tax online free Generally, your basis is its cost if you bought it or built it. Tax online free If you got it in some other way (inheritance, gift, etc. Tax online free ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Tax online free While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Tax online free 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. Tax online free See Adjusted Basis , later. Tax online free You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. Tax online free Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Tax online free Purchase. Tax online free   If you bought your home, your basis is its cost to you. Tax online free This includes the purchase price and certain settlement or closing costs. Tax online free 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. Tax online free If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. Tax online free Settlement fees or closing costs. Tax online free   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Tax online free 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. Tax online free 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). Tax online free    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. Tax online free It also lists some settlement costs that cannot be included in basis. Tax online free   Also see Publication 523 for additional items and a discussion of basis other than cost. Tax online free Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Tax online free To figure your adjusted basis, you can use Worksheet 1 in Publication 523. Tax online free Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Tax online free Increases to basis. Tax online free   These include the following. Tax online free Additions and other improvements that have a useful life of more than 1 year. Tax online free Special assessments for local improvements. Tax online free Amounts you spent after a casualty to restore damaged property. Tax online free Improvements. Tax online free   These add to the value of your home, prolong its useful life, or adapt it to new uses. Tax online free You add the cost of additions and other improvements to the basis of your property. Tax online free   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. Tax online free An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. Tax online free Repairs. Tax online free   These maintain your home in good condition but do not add to its value or prolong its life. Tax online free You do not add their cost to the basis of your property. Tax online free   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. Tax online free Decreases to basis. Tax online free   These include the following. Tax online free Discharge of qualified principal residence indebtedness that was excluded from income. Tax online free Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Tax online free For details, see Publication 4681. Tax online free Gain you postponed from the sale of a previous home before May 7, 1997. Tax online free Deductible casualty losses. Tax online free Insurance payments you received or expect to receive for casualty losses. Tax online free Payments you received for granting an easement or right-of-way. Tax online free Depreciation allowed or allowable if you used your home for business or rental purposes. Tax online free Energy-related credits allowed for expenditures made on the residence. Tax online free (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Tax online free ) Adoption credit you claimed for improvements added to the basis of your home. Tax online free Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Tax online free 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. Tax online free 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. Tax online free District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). Tax online free General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. Tax online free Discharges of qualified principal residence indebtedness. Tax online free   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Tax online free This exclusion applies to discharges made after 2006 and before 2014. Tax online free If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. Tax online free   File Form 982 with your tax return. Tax online free See the form's instructions for detailed information. Tax online free Recordkeeping. Tax online free You should keep records to prove your home's adjusted basis. Tax online free 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. Tax online free 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. Tax online free Keep records proving the basis of both homes as long as they are needed for tax purposes. Tax online free The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. Tax online free Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Tax online free 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. Tax online free To qualify, you must meet the ownership and use tests described later. Tax online free 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. Tax online free You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. Tax online free If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Tax online free See Publication 505, Tax Withholding and Estimated Tax. Tax online free 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. Tax online free You meet the ownership test. Tax online free You meet the use test. Tax online free During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Tax online free For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. Tax online free 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 . Tax online free Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Tax online free 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). Tax online free Exception. Tax online free   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. Tax online free However, the maximum amount you may be able to exclude will be reduced. Tax online free See Reduced Maximum Exclusion , later. Tax online free Example 1—home owned and occupied for at least 2 years. Tax online free Mya bought and moved into her main home in September 2011. Tax online free She sold the home at a gain in October 2013. Tax online free 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. Tax online free She meets the ownership and use tests. Tax online free Example 2—ownership test met but use test not met. Tax online free Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Tax online free He later sold the home for a gain. Tax online free He owned the home during the entire 5-year period ending on the date of sale. Tax online free He meets the ownership test but not the use test. Tax online free He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Tax online free 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. Tax online free 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. Tax online free Temporary absence. Tax online free   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. Tax online free The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Tax online free Example 1. Tax online free David Johnson, who is single, bought and moved into his home on February 1, 2011. Tax online free Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Tax online free David sold the house on March 1, 2013. Tax online free Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. Tax online free 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. Tax online free Example 2. Tax online free Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. Tax online free He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. Tax online free On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. Tax online free Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Tax online free He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. Tax online free Ownership and use tests met at different times. Tax online free   You can meet the ownership and use tests during different 2-year periods. Tax online free However, you must meet both tests during the 5-year period ending on the date of the sale. Tax online free Example. Tax online free Beginning in 2002, Helen Jones lived in a rented apartment. Tax online free The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Tax online free In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Tax online free On July 12, 2013, while still living in her daughter's home, she sold her condominium. Tax online free 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. Tax online free She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Tax online free She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Tax online free 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. Tax online free Cooperative apartment. Tax online free   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. Tax online free Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Tax online free Exception for individuals with a disability. Tax online free   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. Tax online free 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. Tax online free 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. Tax online free Previous home destroyed or condemned. Tax online free   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. Tax online free This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. Tax online free 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. Tax online free Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Tax online free   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Tax online free You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. Tax online free 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. Tax online free   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. Tax online free For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. Tax online free 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. Tax online free (But see Special rules for joint returns , next. Tax online free ) Special rules for joint returns. Tax online free   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Tax online free You are married and file a joint return for the year. Tax online free Either you or your spouse meets the ownership test. Tax online free Both you and your spouse meet the use test. Tax online free 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. Tax online free 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. Tax online free For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Tax online free Example 1—one spouse sells a home. Tax online free Emily sells her home in June 2013 for a gain of $300,000. Tax online free She marries Jamie later in the year. Tax online free She meets the ownership and use tests, but Jamie does not. Tax online free Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Tax online free The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Tax online free Example 2—each spouse sells a home. Tax online free 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. Tax online free He meets the ownership and use tests on his home, but Emily does not. Tax online free Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Tax online free However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Tax online free Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Tax online free 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. Tax online free Sale of main home by surviving spouse. Tax online free   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. Tax online free   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. Tax online free The sale or exchange took place after 2008. Tax online free The sale or exchange took place no more than 2 years after the date of death of your spouse. Tax online free You have not remarried. Tax online free You and your spouse met the use test at the time of your spouse's death. Tax online free You or your spouse met the ownership test at the time of your spouse's death. Tax online free Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Tax online free Example. Tax online free   Harry owned and used a house as his main home since 2009. Tax online free Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. Tax online free Harry died on August 15, 2013, and Wilma inherited the property. Tax online free Wilma sold the property on September 3, 2013, at which time she had not remarried. Tax online free 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. Tax online free Home transferred from spouse. Tax online free   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. Tax online free Use of home after divorce. Tax online free   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. Tax online free 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. Tax online free 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. Tax online free In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Tax online free A change in place of employment. Tax online free Health. Tax online free Unforeseen circumstances. Tax online free Unforeseen circumstances. Tax online free   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. Tax online free   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. Tax online free 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. Tax online free But you must meet the ownership and use tests. Tax online free Periods of nonqualified use. Tax online free   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. Tax online free Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. Tax online free Exceptions. Tax online free   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. Tax online free The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. Tax online free Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. Tax online free Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. Tax online free Calculation. Tax online free   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. Tax online free Example 1. Tax online free On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Tax online free 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. Tax online free The house was rented from June 1, 2009, to March 31, 2011. Tax online free Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Tax online free 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. Tax online free 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. Tax online free Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. Tax online free Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. Tax online free 321. Tax online free To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. Tax online free 321. Tax online free Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. Tax online free Example 2. Tax online free William owned and used a house as his main home from 2007 through 2010. Tax online free On January 1, 2011, he moved to another state. Tax online free He rented his house from that date until April 30, 2013, when he sold it. Tax online free 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. Tax online free He must report the sale on Form 4797 because it was rental property at the time of sale. Tax online free 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. Tax online free Because he met the ownership and use tests, he can exclude gain up to $250,000. Tax online free 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. Tax online free Depreciation after May 6, 1997. Tax online free   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. Tax online free 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. Tax online free See Publication 544 for more information. Tax online free Property used partly for business or rental. Tax online free   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. Tax online free Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. Tax online free If any of these conditions apply, report the entire gain or loss. Tax online free For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. Tax online free If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). Tax online free See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. Tax online free Installment sale. Tax online free    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. Tax online free These sales are called “installment sales. Tax online free ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. Tax online free You may be able to report the part of the gain you cannot exclude on the installment basis. Tax online free    Use Form 6252, Installment Sale Income, to report the sale. Tax online free Enter your exclusion on line 15 of Form 6252. Tax online free Seller-financed mortgage. Tax online free   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. Tax online free You must separately report as interest income the interest you receive as part of each payment. Tax online free If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). Tax online free The buyer must give you his or her SSN, and you must give the buyer your SSN. Tax online free Failure to meet these requirements may result in a $50 penalty for each failure. Tax online free If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. Tax online free More information. Tax online free   For more information on installment sales, see Publication 537, Installment Sales. Tax online free Special Situations The situations that follow may affect your exclusion. Tax online free Sale of home acquired in a like-kind exchange. Tax online free   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. Tax online free Gain from a like-kind exchange is not taxable at the time of the exchange. Tax online free This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. Tax online free To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. Tax online free For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. Tax online free Home relinquished in a like-kind exchange. Tax online free   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. Tax online free Expatriates. Tax online free   You cannot claim the exclusion if the expatriation tax applies to you. Tax online free The expatriation tax applies to certain U. Tax online free S. Tax online free citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). Tax online free For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. Tax online free S. Tax online free Tax Guide for Aliens. Tax online free Home destroyed or condemned. Tax online free   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. Tax online free   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. Tax online free Sale of remainder interest. Tax online free   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. Tax online free If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. Tax online free Exception for sales to related persons. Tax online free   You cannot exclude gain from the sale of a remainder interest in your home to a related person. Tax online free Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Tax online free ), and lineal descendants (children, grandchildren, etc. Tax online free ). Tax online free Related persons also include certain corporations, partnerships, trusts, and exempt organizations. Tax online free Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Tax online free You recapture the benefit by increasing your federal income tax for the year of the sale. Tax online free You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. Tax online free Loans subject to recapture rules. Tax online free   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. Tax online free The recapture also applies to assumptions of these loans. Tax online free When recapture applies. Tax online free   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. Tax online free You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. Tax online free Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). Tax online free When recapture does not apply. Tax online free   Recapture does not apply in any of the following situations. Tax online free Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. Tax online free Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. Tax online free For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. Tax online free Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Tax online free The home is disposed of as a result of your death. Tax online free You dispose of the home more than 9 years after the date you closed your mortgage loan. Tax online free You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. Tax online free You dispose of the home at a loss. Tax online free Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. Tax online free The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. Tax online free For more information, see Replacement Period in Publication 547. Tax online free You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). Tax online free Notice of amounts. Tax online free   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. Tax online free How to figure and report the recapture. Tax online free    The recapture tax is figured on Form 8828. Tax online free If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. Tax online free Attach Form 8828 to your Form 1040. Tax online free For more information, see Form 8828 and its instructions. Tax online free Prev  Up  Next   Home   More Online Publications
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Tax online free 1. Tax online free   Travel Table of Contents Traveling Away From HomeTax Home Tax Home Different From Family Home Temporary Assignment or Job What Travel Expenses Are Deductible?Employee. Tax online free Business associate. Tax online free Bona fide business purpose. Tax online free Meals Travel in the United States Travel Outside the United States Luxury Water Travel Conventions If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses. Tax online free This chapter discusses: Traveling away from home, Temporary assignment or job, and What travel expenses are deductible. Tax online free It also discusses the standard meal allowance, rules for travel inside and outside the United States, luxury water travel, and deductible convention expenses. Tax online free Travel expenses defined. Tax online free   For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Tax online free   An ordinary expense is one that is common and accepted in your trade or business. Tax online free A necessary expense is one that is helpful and appropriate for your business. Tax online free An expense does not have to be required to be considered necessary. Tax online free   You will find examples of deductible travel expenses in Table 1-1 , later. Tax online free Traveling Away From Home You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and You need to sleep or rest to meet the demands of your work while away from home. Tax online free This rest requirement is not satisfied by merely napping in your car. Tax online free You do not have to be away from your tax home for a whole day or from dusk to dawn as long as your relief from duty is long enough to get necessary sleep or rest. Tax online free Example 1. Tax online free You are a railroad conductor. Tax online free You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. Tax online free During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. Tax online free You are considered to be away from home. Tax online free Example 2. Tax online free You are a truck driver. Tax online free You leave your terminal and return to it later the same day. Tax online free You get an hour off at your turnaround point to eat. Tax online free Because you are not off to get necessary sleep and the brief time off is not an adequate rest period, you are not traveling away from home. Tax online free Members of the Armed Forces. Tax online free   If you are a member of the U. Tax online free S. Tax online free Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. Tax online free You cannot deduct your expenses for meals and lodging. Tax online free You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. Tax online free If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Publication 521, Moving Expenses. Tax online free   A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes. Tax online free Tax Home To determine whether you are traveling away from home, you must first determine the location of your tax home. Tax online free Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. Tax online free It includes the entire city or general area in which your business or work is located. Tax online free If you have more than one regular place of business, your tax home is your main place of business. Tax online free See Main place of business or work , later. Tax online free If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. Tax online free See No main place of business or work , later. Tax online free If you do not have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. Tax online free As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home. Tax online free Main place of business or work. Tax online free   If you have more than one place of work, consider the following when determining which one is your main place of business or work. Tax online free The total time you ordinarily spend in each place. Tax online free The level of your business activity in each place. Tax online free Whether your income from each place is significant or insignificant. Tax online free Example. Tax online free You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. Tax online free You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Tax online free Cincinnati is your main place of work because you spend most of your time there and earn most of your income there. Tax online free No main place of business or work. Tax online free   You may have a tax home even if you do not have a regular or main place of work. Tax online free Your tax home may be the home where you regularly live. Tax online free Factors used to determine tax home. Tax online free   If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is. Tax online free You perform part of your business in the area of your main home and use that home for lodging while doing business in the area. Tax online free You have living expenses at your main home that you duplicate because your business requires you to be away from that home. Tax online free You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging. Tax online free   If you satisfy all three factors, your tax home is the home where you regularly live. Tax online free If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. Tax online free If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you cannot deduct travel expenses. Tax online free Example 1. Tax online free You are single and live in Boston in an apartment you rent. Tax online free You have worked for your employer in Boston for a number of years. Tax online free Your employer enrolls you in a 12-month executive training program. Tax online free You do not expect to return to work in Boston after you complete your training. Tax online free During your training, you do not do any work in Boston. Tax online free Instead, you receive classroom and on-the-job training throughout the United States. Tax online free You keep your apartment in Boston and return to it frequently. Tax online free You use your apartment to conduct your personal business. Tax online free You also keep up your community contacts in Boston. Tax online free When you complete your training, you are transferred to Los Angeles. Tax online free You do not satisfy factor (1) because you did not work in Boston. Tax online free You satisfy factor (2) because you had duplicate living expenses. Tax online free You also satisfy factor (3) because you did not abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Tax online free Therefore, you have a tax home in Boston. Tax online free Example 2. Tax online free You are an outside salesperson with a sales territory covering several states. Tax online free Your employer's main office is in Newark, but you do not conduct any business there. Tax online free Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. Tax online free You have a room in your married sister's house in Dayton. Tax online free You stay there for one or two weekends a year, but you do no work in the area. Tax online free You do not pay your sister for the use of the room. Tax online free You do not satisfy any of the three factors listed earlier. Tax online free You are an itinerant and have no tax home. Tax online free Tax Home Different From Family Home If you (and your family) do not live at your tax home (defined earlier), you cannot deduct the cost of traveling between your tax home and your family home. Tax online free You also cannot deduct the cost of meals and lodging while at your tax home. Tax online free See Example 1 , later. Tax online free If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. Tax online free See Example 2 , later. Tax online free Example 1. Tax online free You are a truck driver and you and your family live in Tucson. Tax online free You are employed by a trucking firm that has its terminal in Phoenix. Tax online free At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. Tax online free You cannot deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. Tax online free This is because Phoenix is your tax home. Tax online free Example 2. Tax online free Your family home is in Pittsburgh, where you work 12 weeks a year. Tax online free The rest of the year you work for the same employer in Baltimore. Tax online free In Baltimore, you eat in restaurants and sleep in a rooming house. Tax online free Your salary is the same whether you are in Pittsburgh or Baltimore. Tax online free Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. Tax online free You cannot deduct any expenses you have for meals and lodging there. Tax online free However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. Tax online free You can deduct the cost of your round trip between Baltimore and Pittsburgh. Tax online free You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh. Tax online free Temporary Assignment or Job You may regularly work at your tax home and also work at another location. Tax online free It may not be practical to return to your tax home from this other location at the end of each work day. Tax online free Temporary assignment vs. Tax online free indefinite assignment. Tax online free   If your assignment or job away from your main place of work is temporary, your tax home does not change. Tax online free You are considered to be away from home for the whole period you are away from your main place of work. Tax online free You can deduct your travel expenses if they otherwise qualify for deduction. Tax online free Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less. Tax online free    However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. Tax online free An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year. Tax online free   If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. Tax online free You may be able to deduct the cost of relocating to your new tax home as a moving expense. Tax online free See Publication 521 for more information. Tax online free Exception for federal crime investigations or prosecutions. Tax online free   If you are a federal employee participating in a federal crime investigation or prosecution, you are not subject to the 1-year rule. Tax online free This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility. Tax online free   For you to qualify, the Attorney General (or his or her designee) must certify that you are traveling: For the federal government, In a temporary duty status, and To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime. Tax online free Determining temporary or indefinite. Tax online free   You must determine whether your assignment is temporary or indefinite when you start work. Tax online free If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. Tax online free An assignment or job that is initially temporary may become indefinite due to changed circumstances. Tax online free A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment. Tax online free   The following examples illustrate whether an assignment or job is temporary or indefinite. Tax online free Example 1. Tax online free You are a construction worker. Tax online free You live and regularly work in Los Angeles. Tax online free You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Tax online free Your tax home is Los Angeles. Tax online free Because of a shortage of work, you took a job on a construction project in Fresno. Tax online free Your job was scheduled to end in 8 months. Tax online free The job actually lasted 10 months. Tax online free You realistically expected the job in Fresno to last 8 months. Tax online free The job actually did last less than 1 year. Tax online free The job is temporary and your tax home is still in Los Angeles. Tax online free Example 2. Tax online free The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 18 months. Tax online free The job actually was completed in 10 months. Tax online free Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. Tax online free You cannot deduct any travel expenses you had in Fresno because Fresno became your tax home. Tax online free Example 3. Tax online free The facts are the same as in Example 1, except that you realistically expected the work in Fresno to last 9 months. Tax online free After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months). Tax online free Initially, you realistically expected the job in Fresno to last for only 9 months. Tax online free However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. Tax online free You can only deduct your travel expenses for the first 8 months. Tax online free You cannot deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite. Tax online free Going home on days off. Tax online free   If you go back to your tax home from a temporary assignment on your days off, you are not considered away from home while you are in your hometown. Tax online free You cannot deduct the cost of your meals and lodging there. Tax online free However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. Tax online free You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work. Tax online free   If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. Tax online free In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work. Tax online free Probationary work period. Tax online free   If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. Tax online free You cannot deduct any of your expenses for meals and lodging during the probationary period. Tax online free What Travel Expenses Are Deductible? Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible. Tax online free You can deduct ordinary and necessary expenses you have when you travel away from home on business. Tax online free The type of expense you can deduct depends on the facts and your circumstances. Tax online free Table 1-1 summarizes travel expenses you may be able to deduct. Tax online free You may have other deductible travel expenses that are not covered there, depending on the facts and your circumstances. Tax online free When you travel away from home on business, you should keep records of all the expenses you have and any advances you receive from your employer. Tax online free You can use a log, diary, notebook, or any other written record to keep track of your expenses. Tax online free The types of expenses you need to record, along with supporting documentation, are described in Table 5-1 (see chapter 5). Tax online free Separating costs. Tax online free   If you have one expense that includes the costs of meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of meals and entertainment and the cost of other services. Tax online free You must have a reasonable basis for making this allocation. Tax online free For example, you must allocate your expenses if a hotel includes one or more meals in its room charge. Tax online free Travel expenses for another individual. Tax online free    If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally cannot deduct his or her travel expenses. Tax online free Employee. Tax online free   You can deduct the travel expenses of someone who goes with you if that person: Is your employee, Has a bona fide business purpose for the travel, and Would otherwise be allowed to deduct the travel expenses. Tax online free Business associate. Tax online free   If a business associate travels with you and meets the conditions in (2) and (3), earlier, you can deduct the travel expenses you have for that person. Tax online free A business associate is someone with whom you could reasonably expect to actively conduct business. Tax online free A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. Tax online free Bona fide business purpose. Tax online free   A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Tax online free Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible. Tax online free Table 1-1. Tax online free Travel Expenses You Can Deduct   This chart summarizes expenses you can deduct when you travel away from home for business purposes. Tax online free IF you have expenses for. Tax online free . Tax online free . Tax online free THEN you can deduct the cost of. Tax online free . Tax online free . Tax online free transportation travel by airplane, train, bus, or car between your home and your business destination. Tax online free If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. Tax online free If you travel by ship, see Luxury Water Travel and Cruise Ships (under Conventions) for additional rules and limits. Tax online free taxi, commuter bus, and airport limousine fares for these and other types of transportation that take you between: The airport or station and your hotel, and The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location. Tax online free baggage and shipping sending baggage and sample or display material between your regular and temporary work locations. Tax online free car operating and maintaining your car when traveling away from home on business. Tax online free You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. Tax online free If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Tax online free lodging and meals your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Tax online free Meals include amounts spent for food, beverages, taxes, and related tips. Tax online free See Meals for additional rules and limits. Tax online free cleaning dry cleaning and laundry. Tax online free telephone business calls while on your business trip. Tax online free This includes business communication by fax machine or other communication devices. Tax online free tips tips you pay for any expenses in this chart. Tax online free other other similar ordinary and necessary expenses related to your business travel. Tax online free These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer. Tax online free Example. Tax online free Jerry drives to Chicago on business and takes his wife, Linda, with him. Tax online free Linda is not Jerry's employee. Tax online free Linda occasionally types notes, performs similar services, and accompanies Jerry to luncheons and dinners. Tax online free The performance of these services does not establish that her presence on the trip is necessary to the conduct of Jerry's business. Tax online free Her expenses are not deductible. Tax online free Jerry pays $199 a day for a double room. Tax online free A single room costs $149 a day. Tax online free He can deduct the total cost of driving his car to and from Chicago, but only $149 a day for his hotel room. Tax online free If he uses public transportation, he can deduct only his fare. Tax online free Meals You can deduct the cost of meals in either of the following situations. Tax online free It is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Tax online free The meal is business-related entertainment. Tax online free Business-related entertainment is discussed in chapter 2 . Tax online free The following discussion deals only with meals that are not business-related entertainment. Tax online free Lavish or extravagant. Tax online free   You cannot deduct expenses for meals that are lavish or extravagant. Tax online free An expense is not considered lavish or extravagant if it is reasonable based on the facts and circumstances. Tax online free Expenses will not be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts. Tax online free 50% limit on meals. Tax online free   You can figure your meals expense using either of the following methods. Tax online free Actual cost. Tax online free The standard meal allowance. Tax online free Both of these methods are explained below. Tax online free But, regardless of the method you use, you generally can deduct only 50% of the unreimbursed cost of your meals. Tax online free   If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. Tax online free If you are not reimbursed, the 50% limit applies whether the unreimbursed meal expense is for business travel or business entertainment. Tax online free Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans. Tax online free Actual Cost You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. Tax online free If you use this method, you must keep records of your actual cost. Tax online free Standard Meal Allowance Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. Tax online free It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. Tax online free The set amount varies depending on where and when you travel. Tax online free In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . Tax online free If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel. Tax online free See the recordkeeping rules for travel in chapter 5 . Tax online free Incidental expenses. Tax online free   The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Tax online free   Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. Tax online free Incidental-expenses-only method. Tax online free   You can use an optional method (instead of actual cost) for deducting incidental expenses only. Tax online free The amount of the deduction is $5 a day. Tax online free You can use this method only if you did not pay or incur any meal expenses. Tax online free You cannot use this method on any day that you use the standard meal allowance. Tax online free This method is subject to the proration rules for partial days. Tax online free See Travel for days you depart and return , later in this chapter. Tax online free Note. Tax online free The incidental-expenses-only method is not subject to the 50% limit discussed below. Tax online free Federal employees should refer to the Federal Travel Regulations at www. Tax online free gsa. Tax online free gov. Tax online free Find the “Most Requested Links” on the upper left and click on “Regulations: FAR, FMR, FTR” for Federal Travel Regulation (FTR) for changes affecting claims for reimbursement. Tax online free 50% limit may apply. Tax online free   If you use the standard meal allowance method for meal expenses and you are not reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. Tax online free If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Tax online free The 50% limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6. Tax online free There is no optional standard lodging amount similar to the standard meal allowance. Tax online free Your allowable lodging expense deduction is your actual cost. Tax online free Who can use the standard meal allowance. Tax online free   You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. Tax online free Use of the standard meal allowance for other travel. Tax online free   You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. Tax online free You can also use it to figure your meal expenses when you travel for qualifying educational purposes. Tax online free You cannot use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes. Tax online free Amount of standard meal allowance. Tax online free   The standard meal allowance is the federal M&IE rate. Tax online free For travel in 2013, the rate for most small localities in the United States is $46 a day. Tax online free    Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances. Tax online free    You can find this information (organized by state) on the Internet at www. Tax online free gsa. Tax online free gov/perdiem. Tax online free Enter a zip code or select a city and state for the per diem rates for the current fiscal year. Tax online free Per diem rates for prior fiscal years are available by using the drop down menu under “Search by State. Tax online free ”   Per diem rates are listed by the Federal government's fiscal year which runs from October 1 to September 30. Tax online free You can choose to use the rates from the 2013 fiscal year per diem tables or the rates from the 2014 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. Tax online free   If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. Tax online free If you work in the transportation industry, however, see Special rate for transportation workers , later. Tax online free Standard meal allowance for areas outside the continental United States. Tax online free   The standard meal allowance rates above do not apply to travel in Alaska, Hawaii, or any other location outside the continental United States. Tax online free The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U. Tax online free S. Tax online free Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. Tax online free The Department of State establishes per diem rates for all other foreign areas. Tax online free    You can access per diem rates for non-foreign areas outside the continental United States at: www. Tax online free defensetravel. Tax online free dod. Tax online free mil/site/perdiemCalc. Tax online free cfm. Tax online free You can access all other foreign per diem rates at: www. Tax online free state. Tax online free gov/travel/. Tax online free Click on “Travel Per Diem Allowances for Foreign Areas,” under “Foreign Per Diem Rates” to obtain the latest foreign per diem rates. Tax online free Special rate for transportation workers. Tax online free   You can use a special standard meal allowance if you work in the transportation industry. Tax online free You are in the transportation industry if your work: Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates. Tax online free If this applies to you, you can claim a standard meal allowance of $59 a day ($65 for travel outside the continental United States). Tax online free   Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. Tax online free If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year. Tax online free Travel for days you depart and return. Tax online free   For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). Tax online free You can do so by one of two methods. Tax online free Method 1: You can claim 3/4 of the standard meal allowance. Tax online free Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice. Tax online free Example. Tax online free Jen is employed in New Orleans as a convention planner. Tax online free In March, her employer sent her on a 3-day trip to Washington, DC, to attend a planning seminar. Tax online free She left her home in New Orleans at 10 a. Tax online free m. Tax online free on Wednesday and arrived in Washington, DC, at 5:30 p. Tax online free m. Tax online free After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p. Tax online free m. Tax online free Jen's employer gave her a flat amount to cover her expenses and included it with her wages. Tax online free Under Method 1, Jen can claim 2½ days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday. Tax online free Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. Tax online free For example, she could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days. Tax online free Travel in the United States The following discussion applies to travel in the United States. Tax online free For this purpose, the United States includes the 50 states and the District of Columbia. Tax online free The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. Tax online free See Part of Trip Outside the United States , later. Tax online free Trip Primarily for Business You can deduct all of your travel expenses if your trip was entirely business related. Tax online free If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. Tax online free These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination. Tax online free Example. Tax online free You work in Atlanta and take a business trip to New Orleans in May. Tax online free Your business travel totals 850 miles round trip. Tax online free On your way, you stop in Mobile to visit your parents. Tax online free You spend $2,120 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. Tax online free If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,820. Tax online free You can deduct $1,820 for your trip, including the cost of round-trip transportation to and from New Orleans. Tax online free The deduction for your meals is subject to the 50% limit on meals mentioned earlier. Tax online free Trip Primarily for Personal Reasons If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. Tax online free However, you can deduct any expenses you have while at your destination that are directly related to your business. Tax online free A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. Tax online free The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, will not change what is really a vacation into a business trip. Tax online free Part of Trip Outside the United States If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. Tax online free For the part of your trip that is inside the United States, use the rules for travel in the United States. Tax online free Travel outside the United States does not include travel from one point in the United States to another point in the United States. Tax online free The following discussion can help you determine whether your trip was entirely within the United States. Tax online free Public transportation. Tax online free   If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Tax online free Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States . Tax online free Example. Tax online free You fly from New York to Puerto Rico with a scheduled stop in Miami. Tax online free You return to New York nonstop. Tax online free The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Tax online free Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States. Tax online free Private car. Tax online free   Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States. Tax online free Example. Tax online free You travel by car from Denver to Mexico City and return. Tax online free Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. Tax online free The rules under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border. Tax online free Travel Outside the United States If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. Tax online free For this purpose, the United States includes the 50 states and the District of Columbia. Tax online free How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related. Tax online free Travel Entirely for Business or Considered Entirely for Business You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business. Tax online free Travel entirely for business. Tax online free   If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses. Tax online free Travel considered entirely for business. Tax online free   Even if you did not spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions. Tax online free Exception 1 - No substantial control. Tax online free   Your trip is considered entirely for business if you did not have substantial control over arranging the trip. Tax online free The fact that you control the timing of your trip does not, by itself, mean that you have substantial control over arranging your trip. Tax online free   You do not have substantial control over your trip if you: Are an employee who was reimbursed or paid a travel expense allowance, and Are not related to your employer, or Are not a managing executive. Tax online free    “Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances . Tax online free   A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel. Tax online free   A self-employed person generally has substantial control over arranging business trips. Tax online free Exception 2 - Outside United States no more than a week. Tax online free   Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. Tax online free One week means 7 consecutive days. Tax online free In counting the days, do not count the day you leave the United States, but do count the day you return to the United States. Tax online free Example. Tax online free You traveled to Brussels primarily for business. Tax online free You left Denver on Tuesday and flew to New York. Tax online free On Wednesday, you flew from New York to Brussels, arriving the next morning. Tax online free On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. Tax online free You flew back to New York, arriving Wednesday afternoon. Tax online free On Thursday, you flew back to Denver. Tax online free Although you were away from your home in Denver for more than a week, you were not outside the United States for more than a week. Tax online free This is because the day you depart does not count as a day outside the United States. Tax online free You can deduct your cost of the round-trip flight between Denver and Brussels. Tax online free You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. Tax online free However, you cannot deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities. Tax online free Exception 3 - Less than 25% of time on personal activities. Tax online free   Your trip is considered entirely for business if: You were outside the United States for more than a week, and You spent less than 25% of the total time you were outside the United States on nonbusiness activities. Tax online free For this purpose, count both the day your trip began and the day it ended. Tax online free Example. Tax online free You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. Tax online free You then flew back to Seattle. Tax online free You spent 1 day flying in each direction. Tax online free Because only 5/21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you had not engaged in any nonbusiness activity. Tax online free The amount you can deduct is the cost of the round-trip plane fare and 16 days of meals (subject to the 50% limit), lodging, and other related expenses. Tax online free Exception 4 - Vacation not a major consideration. Tax online free   Your trip is considered entirely for business if you can establish that a personal vacation was not a major consideration, even if you have substantial control over arranging the trip. Tax online free Travel Primarily for Business If you travel outside the United States primarily for business but spend some of your time on other activities, you generally cannot deduct all of your travel expenses. Tax online free You can only deduct the business portion of your cost of getting to and from your destination. Tax online free You must allocate the costs between your business and other activities to determine your deductible amount. Tax online free See Travel allocation rules , later. Tax online free You do not have to allocate your travel expenses if you meet one of the four exceptions listed earlier under Travel considered entirely for business . Tax online free In those cases, you can deduct the total cost of getting to and from your destination. Tax online free Travel allocation rules. Tax online free   If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. Tax online free The days you depart from and return to the United States are both counted as days outside the United States. Tax online free   To figure the deductible amount of your round-trip travel expenses, use the following fraction. Tax online free The numerator (top number) is the total number of business days outside the United States. Tax online free The denominator (bottom number) is the total number of business and nonbusiness days of travel. Tax online free Counting business days. Tax online free   Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays. Tax online free Transportation day. Tax online free   Count as a business day any day you spend traveling to or from a business destination. Tax online free However, if because of a nonbusiness activity you do not travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Tax online free Extra days for side trips or nonbusiness activities cannot be counted as business days. Tax online free Presence required. Tax online free   Count as a business day any day your presence is required at a particular place for a specific business purpose. Tax online free Count it as a business day even if you spend most of the day on nonbusiness activities. Tax online free Day spent on business. Tax online free   If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Tax online free Also, count as a business day any day you are prevented from working because of circumstances beyond your control. Tax online free Certain weekends and holidays. Tax online free   Count weekends, holidays, and other necessary standby days as business days if they fall between business days. Tax online free But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, do not count them as business days. Tax online free Example 1. Tax online free Your tax home is New York City. Tax online free You travel to Quebec, where you have a business appointment on Friday. Tax online free You have another appointment on the following Monday. Tax online free Because your presence was required on both Friday and Monday, they are business days. Tax online free Because the weekend is between business days, Saturday and Sunday are counted as business days. Tax online free This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity. Tax online free Example 2. Tax online free If, in Example 1, you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days. Tax online free Nonbusiness activity on the way to or from your business destination. Tax online free   If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Tax online free   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends. Tax online free   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Tax online free The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Tax online free Example. Tax online free You live in New York. Tax online free On May 4 you flew to Paris to attend a business conference that began on May 5. Tax online free The conference ended at noon on May 14. Tax online free That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. Tax online free The primary purpose for the trip was to attend the conference. Tax online free If you had not stopped in Dublin, you would have arrived home the evening of May 14. Tax online free You do not meet any of the exceptions that would allow you to consider your travel entirely for business. Tax online free May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days. Tax online free You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris. Tax online free You cannot deduct your expenses while in Dublin. Tax online free You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin. Tax online free You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Tax online free Round-trip airfare from New York to Dublin would have been $1,250. Tax online free You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7/18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850). Tax online free Your deductible air travel expense is $1,364 ($1,850 − $486). Tax online free Nonbusiness activity at, near, or beyond business destination. Tax online free   If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity. Tax online free   The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends. Tax online free   You determine the nonbusiness portion of that expense by multiplying it by a fraction. Tax online free The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States and the denominator (bottom number) is the total number of days you spend outside the United States. Tax online free   None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible. Tax online free Example. Tax online free Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation. Tax online free You cannot deduct any part of the cost of your trip from Paris to Venice and return to Paris. Tax online free In addition, you cannot deduct 7/18 of the airfare and other expenses from New York to Paris and back to New York. Tax online free You can deduct 11/18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your meals (subject to the 50% limit), lodging, and any other business expenses you had in Paris. Tax online free (Assume these expenses total $4,939. Tax online free ) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 (11/18 × $1,750), plus the full $4,939 for the expenses you had in Paris. Tax online free Other methods. Tax online free   You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States. Tax online free Travel Primarily for Personal Reasons If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. Tax online free However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business. Tax online free Example. Tax online free The university from which you graduated has a continuing education program for members of its alumni association. Tax online free This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. Tax online free However, none of the conferences are directed toward specific occupations or professions. Tax online free It is up to each participant to seek out specialists and organizational settings appropriate to his or her occupational interests. Tax online free Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. Tax online free These sessions are composed of a variety of activities including workshops, mini-lectures, role playing, skill development, and exercises. Tax online free Professional conference directors schedule and conduct the sessions. Tax online free Participants can choose those sessions they wish to attend. Tax online free You can participate in this program since you are a member of the alumni association. Tax online free You and your family take one of the trips. Tax online free You spend about 2 hours at each of the planned sessions. Tax online free The rest of the time you go touring and sightseeing with your family. Tax online free The trip lasts less than 1 week. Tax online free Your travel expenses for the trip are not deductible since the trip was primarily a vacation. Tax online free However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. Tax online free These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses. Tax online free Luxury Water Travel If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. Tax online free The limit is twice the highest federal per diem rate allowable at the time of your travel. Tax online free (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home, but in the United States, for business purposes. Tax online free ) Daily limit on luxury water travel. Tax online free   The highest federal per diem rate allowed and the daily limit for luxury water travel in 2013 is shown in the following table. Tax online free   2013 Dates Highest Federal Per Diem Daily Limit on Luxury Water Travel   Jan. Tax online free 1 – Mar. Tax online free 31 $367 $734   Apr. Tax online free 1 – June 30 312 624   July 1 – Aug. Tax online free 31 310 620   Sept. Tax online free 1 – Sept. Tax online free 30 366 732   Oct. Tax online free 1 – Dec. Tax online free 31 374 748 Example. Tax online free Caroline, a travel agent, traveled by ocean liner from New York to London, England, on business in May. Tax online free Her expense for the 6-day cruise was $5,200. Tax online free Caroline's deduction for the cruise cannot exceed $3,744 (6 days × $624 daily limit). Tax online free Meals and entertainment. Tax online free   If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on meals and entertainment before you apply the daily limit. Tax online free For a discussion of the 50% Limit , see chapter 2. Tax online free Example. Tax online free In the previous example, Caroline's luxury water travel had a total cost of $5,200. Tax online free Of that amount, $3,700 was separately stated as meals and entertainment. Tax online free Caroline, who is self-employed, is not reimbursed for any of her travel expenses. Tax online free Caroline figures her deductible travel expenses as follows. Tax online free Meals and entertainment $3,700   50% limit × . Tax online free 50   Allowable meals &     entertainment $1,850   Other travel expenses + 1,800   Allowable cost before the daily limit $3,650 Daily limit for May 2013 $624   Times number of days × 6   Maximum luxury water travel     deduction $3,744 Amount of allowable deduction $3,650 Caroline's deduction for her cruise is limited to $3,650, even though the limit on luxury water travel is slightly higher. Tax online free Not separately stated. Tax online free   If your meal or entertainment charges are not separately stated or are not clearly identifiable, you do not have to allocate any portion of the total charge to meals or entertainment. Tax online free Exceptions The daily limit on luxury water travel (discussed earlier) does not apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. Tax online free See Cruise Ships under Conventions. Tax online free Conventions You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. Tax online free You cannot deduct the travel expenses for your family. Tax online free If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you cannot deduct the expenses. Tax online free Your appointment or election as a delegate does not, in itself, determine whether you can deduct travel expenses. Tax online free You can deduct your travel expenses only if your attendance is connected to your own trade or business. Tax online free Convention agenda. Tax online free   The convention agenda or program generally shows the purpose of the convention. Tax online free You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. Tax online free The agenda does not have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes. Tax online free Conventions Held Outside the North American Area You cannot deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless: The meeting is directly related to your trade or business, and It is reasonable to hold the meeting outside the North American area. Tax online free See Reasonableness test , later. Tax online free If the meeting meets these requirements, you also must satisfy the rules for deducting expenses for business trips in general, discussed earlier under Travel Outside the United States . Tax online free North American area. Tax online free   The North American area includes the following locations. Tax online free American Samoa Johnston Island Antigua and Barbuda Kingman Reef Aruba Marshall Islands Bahamas Mexico Baker Island Micronesia Barbados Midway Islands Bermuda Netherlands Antilles Canada Northern Mariana Costa Rica Islands Dominica Palau Dominican Republic Palmyra Atoll Grenada Panama Guam Puerto Rico Guyana Trinidad and Tobago Honduras USA Howland Island U. Tax online free S. Tax online free Virgin Islands Jamaica Wake Island Jarvis Island   The North American area also includes U. Tax online free S. Tax online free islands, cays, and reefs that are possessions of the United States and not part of the fifty states or the District of Columbia. Tax online free Reasonableness test. Tax online free   The following factors are taken into account to determine if it was reasonable to hold the meeting outside the North American area. Tax online free The purpose of the meeting and the activities taking place at the meeting. Tax online free The purposes and activities of the sponsoring organizations or groups. Tax online free The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held. Tax online free Other relevant factors you may present. Tax online free Cruise Ships You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. Tax online free All ships that sail are considered cruise ships. Tax online free You can deduct these expenses only if all of the following requirements are met. Tax online free The convention, seminar, or meeting is directly related to your trade or business. Tax online free The cruise ship is a vessel registered in the United States. Tax online free All of the cruise ship's ports of call are in the United States or in possessions of the United States. Tax online free You attach to your return a written statement signed by you that includes information about: The total days of the trip (not including the days of transportation to and from the cruise ship port), The number of hours each day that you devoted to scheduled business activities, and A program of the scheduled business activities of the meeting. Tax online free You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes: A schedule of the business activities of each day of the meeting, and The number of hours you attended the scheduled business activities. Tax online free Prev  Up  Next   Home   More Online Publications