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File taxes online free state 2. File taxes online free state   Source of Income Table of Contents Introduction Topics - This chapter discusses: Resident Aliens Nonresident AliensInterest Income Dividends Guarantee of Indebtedness Personal Services Transportation Income Scholarships, Grants, Prizes, and Awards Pensions and Annuities Rents or Royalties Real Property Personal Property Community Income Introduction After you have determined your alien status, you must determine the source of your income. File taxes online free state This chapter will help you determine the source of different types of income you may receive during the tax year. File taxes online free state This chapter also discusses special rules for married individuals who are domiciled in a country with community property laws. File taxes online free state Topics - This chapter discusses: Income source rules, and Community income. File taxes online free state Resident Aliens A resident alien's income is generally subject to tax in the same manner as a U. File taxes online free state S. File taxes online free state citizen. File taxes online free state If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U. File taxes online free state S. File taxes online free state tax return. File taxes online free state You must report these amounts from sources within and outside the United States. File taxes online free state Nonresident Aliens A nonresident alien usually is subject to U. File taxes online free state S. File taxes online free state income tax only on U. File taxes online free state S. File taxes online free state source income. File taxes online free state Under limited circumstances, certain foreign source income is subject to U. File taxes online free state S. File taxes online free state tax. File taxes online free state See Foreign Income in chapter 4. File taxes online free state The general rules for determining U. File taxes online free state S. File taxes online free state source income that apply to most nonresident aliens are shown in Table 2-1. File taxes online free state The following discussions cover the general rules as well as the exceptions to these rules. File taxes online free state Not all items of U. File taxes online free state S. File taxes online free state source income are taxable. File taxes online free state See chapter 3. File taxes online free state Interest Income Generally, U. File taxes online free state S. File taxes online free state source interest income includes the following items. File taxes online free state Interest on bonds, notes, or other interest-bearing obligations of U. File taxes online free state S. File taxes online free state residents or domestic corporations. File taxes online free state Interest paid by a domestic or foreign partnership or foreign corporation engaged in a U. File taxes online free state S. File taxes online free state trade or business at any time during the tax year. File taxes online free state Original issue discount. File taxes online free state Interest from a state, the District of Columbia, or the U. File taxes online free state S. File taxes online free state Government. File taxes online free state The place or manner of payment is immaterial in determining the source of the income. File taxes online free state A substitute interest payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as the interest on the transferred security. File taxes online free state Exceptions. File taxes online free state   U. File taxes online free state S. File taxes online free state source interest income does not include the following items. File taxes online free state Interest paid by a resident alien or a domestic corporation on obligations issued before August 10, 2010, if for the 3-year period ending with the close of the payer's tax year preceding the interest payment, at least 80% of the payer's total gross income: Is from sources outside the United States, and Is attributable to the active conduct of a trade or business by the individual or corporation in a foreign country or a U. File taxes online free state S. File taxes online free state possession. File taxes online free state However, the interest will be considered U. File taxes online free state S. File taxes online free state source interest income if either of the following apply. File taxes online free state The recipient of the interest is related to the resident alien or domestic corporation. File taxes online free state See section 954(d)(3) for the definition of related person. File taxes online free state The terms of the obligation are significantly modified after August 9, 2010. File taxes online free state Any extension of the term of the obligation is considered a significant modification. File taxes online free state Interest paid by a foreign branch of a domestic corporation or a domestic partnership on deposits or withdrawable accounts with mutual savings banks, cooperative banks, credit unions, domestic building and loan associations, and other savings institutions chartered and supervised as savings and loan or similar associations under federal or state law if the interest paid or credited can be deducted by the association. File taxes online free state Interest on deposits with a foreign branch of a domestic corporation or domestic partnership, but only if the branch is in the commercial banking business. File taxes online free state Dividends In most cases, dividend income received from domestic corporations is U. File taxes online free state S. File taxes online free state source income. File taxes online free state Dividend income from foreign corporations is usually foreign source income. File taxes online free state Exceptions to both of these rules are discussed below. File taxes online free state A substitute dividend payment made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction is sourced in the same manner as a distribution on the transferred security. File taxes online free state Dividend equivalent payments. File taxes online free state   U. File taxes online free state S. File taxes online free state source dividends also include all dividend equivalent payments. File taxes online free state Dividend equivalent payments include substitute dividends, payments made pursuant to a specified notional principal contract, and all similar payments that, directly or indirectly, are contingent on or determined by reference to, the payment of a dividend from U. File taxes online free state S. File taxes online free state sources. File taxes online free state    The Internal Revenue Service has issued final regulations that would affect the treatment of dividend equivalent payments and specified notional principal contracts. File taxes online free state You can view this regulation at www. File taxes online free state irs. File taxes online free state gov/irb/2013-52_IRB/ar08. File taxes online free state html. File taxes online free state First exception. File taxes online free state   Dividends received from a domestic corporation are not U. File taxes online free state S. File taxes online free state source income if the corporation elects to take the American Samoa economic development credit. File taxes online free state Second exception. File taxes online free state   Part of the dividends received from a foreign corporation is U. File taxes online free state S. File taxes online free state source income if 25% or more of its total gross income for the 3-year period ending with the close of its tax year preceding the declaration of dividends was effectively connected with a trade or business in the United States. File taxes online free state If the corporation was formed less than 3 years before the declaration, use its total gross income from the time it was formed. File taxes online free state Determine the part that is U. File taxes online free state S. File taxes online free state source income by multiplying the dividend by the following fraction. File taxes online free state   Foreign corporation's gross income connected with a U. File taxes online free state S. File taxes online free state trade or business for the 3-year period     Foreign corporation's gross income from all sources for that period   Guarantee of Indebtedness Certain amounts received directly or indirectly, for the provision of a guarantee of indebtedness issued after September 27, 2010, are U. File taxes online free state S. File taxes online free state source income. File taxes online free state They must be paid by a noncorporate resident or U. File taxes online free state S. File taxes online free state corporation or by any foreign person if the amounts are effectively connected with the conduct of a U. File taxes online free state S. File taxes online free state trade or business. File taxes online free state For more information, see Internal Revenue Code sections 861(a)(9) and 862(a)(9). File taxes online free state Personal Services All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. File taxes online free state The only exceptions to this rule are discussed in chapter 3 under Employees of foreign persons, organizations, or offices, and under Crew members. File taxes online free state If you are an employee and receive compensation for labor or personal services performed both inside and outside the United States, special rules apply in determining the source of the compensation. File taxes online free state Compensation (other than certain fringe benefits) is sourced on a time basis. File taxes online free state Certain fringe benefits (such as housing and education) are sourced on a geographical basis. File taxes online free state Or, you may be permitted to use an alternative basis to determine the source of compensation. File taxes online free state See Alternative Basis , later. File taxes online free state Multi-level marketing. File taxes online free state   Certain companies sell products through a multi-level marketing arrangement, such that an upper-tier distributor, who has sponsored a lower-tier distributor, is entitled to a payment from the company based on certain activities of that lower-tier distributor. File taxes online free state Generally, depending on the facts, payments from such multi-level marketing companies to independent (non-employee) distributors (upper-tier distributors) that are based on the sales or purchases of persons whom they have sponsored (lower-tier distributors) constitute income for the performance of personal services in recruiting, training, and supporting the lower-tier distributors. File taxes online free state The source of such income is generally based on where the services of the upper-tier distributor are performed, and may, depending on the facts, be considered multi-year compensation, with the source of income determined over the period to which such compensation is attributable. File taxes online free state Self-employed individuals. File taxes online free state   If you are self-employed, you determine the source of compensation for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. File taxes online free state In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. File taxes online free state Time Basis Use a time basis to figure your U. File taxes online free state S. File taxes online free state source compensation (other than the fringe benefits discussed later). File taxes online free state Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed services in the United States during the year     Total number of days you performed services during the year   You can use a unit of time less than a day in the above fraction, if appropriate. File taxes online free state The time period for which the compensation is made does not have to be a year. File taxes online free state Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. File taxes online free state Example 1. File taxes online free state Christina Brooks, a resident of the Netherlands, worked 240 days for a U. File taxes online free state S. File taxes online free state company during the tax year. File taxes online free state She received $80,000 in compensation. File taxes online free state None of it was for fringe benefits. File taxes online free state Christina performed services in the United States for 60 days and performed services in the Netherlands for 180 days. File taxes online free state Using the time basis for determining the source of compensation, $20,000 ($80,000 × 60/240) is her U. File taxes online free state S. File taxes online free state source income. File taxes online free state Example 2. File taxes online free state Rob Waters, a resident of South Africa, is employed by a corporation. File taxes online free state His annual salary is $100,000. File taxes online free state None of it is for fringe benefits. File taxes online free state During the first quarter of the year he worked entirely within the United States. File taxes online free state On April 1, Rob was transferred to Singapore for the remainder of the year. File taxes online free state Rob is able to establish that the first quarter of the year and the last 3 quarters of the year are two separate, distinct, and continuous periods of time. File taxes online free state Accordingly, $25,000 of Rob's annual salary is attributable to the first quarter of the year (. File taxes online free state 25 × $100,000). File taxes online free state All of it is U. File taxes online free state S. File taxes online free state source income because he worked entirely within the United States during that quarter. File taxes online free state The remaining $75,000 is attributable to the last three quarters of the year. File taxes online free state During those quarters, he worked 150 days in Singapore and 30 days in the United States. File taxes online free state His periodic performance of services in the United States did not result in distinct, separate, and continuous periods of time. File taxes online free state Of this $75,000, $12,500 ($75,000 × 30/180) is U. File taxes online free state S. File taxes online free state source income. File taxes online free state Multi-year compensation. File taxes online free state   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. File taxes online free state Multi-year compensation is compensation that is included in your income in one tax year but that is attributable to a period that includes two or more tax years. File taxes online free state   You determine the period to which the compensation is attributable based on the facts and circumstances of your case. File taxes online free state For example, an amount of compensation that specifically relates to a period of time that includes several calendar years is attributable to the entire multi-year period. File taxes online free state   The amount of compensation treated as from U. File taxes online free state S. File taxes online free state sources is figured by multiplying the total multi-year compensation by a fraction. File taxes online free state The numerator of the fraction is the number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in the United States in connection with the project. File taxes online free state The denominator of the fraction is the total number of days (or unit of time less than a day, if appropriate) that you performed labor or personal services in connection with the project. File taxes online free state Geographical Basis Compensation you receive as an employee in the form of the following fringe benefits is sourced on a geographical basis. File taxes online free state Housing. File taxes online free state Education. File taxes online free state Local transportation. File taxes online free state Tax reimbursement. File taxes online free state Hazardous or hardship duty pay as defined in Regulations section 1. File taxes online free state 861-4(b)(2)(ii)(D)(5). File taxes online free state Moving expense reimbursement. File taxes online free state The amount of fringe benefits must be reasonable and you must substantiate them by adequate records or by sufficient evidence. File taxes online free state Principal place of work. File taxes online free state   The above fringe benefits, except for tax reimbursement and hazardous or hardship duty pay, are sourced based on your principal place of work. File taxes online free state Your principal place of work is usually the place where you spend most of your working time. File taxes online free state This could be your office, plant, store, shop, or other location. File taxes online free state If there is no one place where you spend most of your working time, your main job location is the place where your work is centered, such as where you report for work or are otherwise required to “base” your work. File taxes online free state   If you have more than one job at any time, your main job location depends on the facts in each case. File taxes online free state The more important factors to be considered are: The total time you spend at each place, The amount of work you do at each place, and How much money you earn at each place. File taxes online free state Housing. File taxes online free state   The source of a housing fringe benefit is determined based on the location of your principal place of work. File taxes online free state A housing fringe benefit includes payments to you or on your behalf (and your family's if your family resides with you) only for the following. File taxes online free state Rent. File taxes online free state Utilities (except telephone charges). File taxes online free state Real and personal property insurance. File taxes online free state Occupancy taxes not deductible under section 164 or 216(a). File taxes online free state Nonrefundable fees for securing a leasehold. File taxes online free state Rental of furniture and accessories. File taxes online free state Household repairs. File taxes online free state Residential parking. File taxes online free state Fair rental value of housing provided in kind by your employer. File taxes online free state   A housing fringe benefit does not include: Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation), The cost of buying property, including principal payments on a mortgage, The cost of domestic labor (maids, gardeners, etc. File taxes online free state ), Pay television subscriptions, Improvements and other expenses that increase the value or appreciably prolong the life of property, Purchased furniture or accessories, Depreciation or amortization of property or improvements, The value of meals or lodging that you exclude from gross income, or The value of meals or lodging that you deduct as moving expenses. File taxes online free state Education. File taxes online free state   The source of an education fringe benefit for the education expenses of your dependents is determined based on the location of your principal place of work. File taxes online free state An education fringe benefit includes payments only for the following expenses for education at an elementary or secondary school. File taxes online free state Tuition, fees, academic tutoring, special needs services for a special needs student, books, supplies, and other equipment. File taxes online free state Room and board and uniforms that are required or provided by the school in connection with enrollment or attendance. File taxes online free state Local transportation. File taxes online free state   The source of a local transportation fringe benefit is determined based on the location of your principal place of work. File taxes online free state Your local transportation fringe benefit is the amount that you receive as compensation for local transportation for you or your spouse or dependents at the location of your principal place of work. File taxes online free state The amount treated as a local transportation fringe benefit is limited to actual expenses incurred for local transportation and the fair rental value of any employer-provided vehicle used predominantly by you, your spouse, or your dependents for local transportation. File taxes online free state Actual expenses do not include the cost (including interest) of any vehicle purchased by you or on your behalf. File taxes online free state Tax reimbursement. File taxes online free state   The source of a tax reimbursement fringe benefit is determined based on the location of the jurisdiction that imposed the tax for which you are reimbursed. File taxes online free state Moving expense reimbursement. File taxes online free state   The source of a moving expense reimbursement is generally based on the location of your new principal place of work. File taxes online free state However, the source is determined based on the location of your former principal place of work if you provide sufficient evidence that such determination of source is more appropriate under the facts and circumstances of your case. File taxes online free state Sufficient evidence generally requires an agreement between you and your employer, or a written statement of company policy, which is reduced to writing before the move and which is entered into or established to induce you or other employees to move to another country. File taxes online free state The written statement or agreement must state that your employer will reimburse you for moving expenses that you incur to return to your former principal place of work regardless of whether you continue to work for your employer after returning to that location. File taxes online free state It may contain certain conditions upon which the right to reimbursement is determined as long as those conditions set forth standards that are definitely ascertainable and can only be fulfilled prior to, or through completion of, your return move to your former principal place of work. File taxes online free state Alternative Basis If you are an employee, you can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your compensation than the time or geographical basis. File taxes online free state If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your compensation. File taxes online free state Also, if your total compensation from all sources is $250,000 or more, check “Yes” to both questions on line K on page 5 of Form 1040NR, and attach a written statement to your tax return that sets forth all of the following. File taxes online free state Your name and social security number (written across the top of the statement). File taxes online free state The specific compensation income, or the specific fringe benefit, for which you are using the alternative basis. File taxes online free state For each item in (2), the alternative basis of allocation of source used. File taxes online free state For each item in (2), a computation showing how the alternative allocation was computed. File taxes online free state A comparison of the dollar amount of the U. File taxes online free state S. File taxes online free state compensation and foreign compensation sourced under both the alternative basis and the time or geographical basis discussed earlier. File taxes online free state Transportation Income Transportation income is income from the use of a vessel or aircraft or for the performance of services directly related to the use of any vessel or aircraft. File taxes online free state This is true whether the vessel or aircraft is owned, hired, or leased. File taxes online free state The term “vessel or aircraft” includes any container used in connection with a vessel or aircraft. File taxes online free state All income from transportation that begins and ends in the United States is treated as derived from sources in the United States. File taxes online free state If the transportation begins or ends in the United States, 50% of the transportation income is treated as derived from sources in the United States. File taxes online free state For transportation income from personal services, 50% of the income is U. File taxes online free state S. File taxes online free state source income if the transportation is between the United States and a U. File taxes online free state S. File taxes online free state possession. File taxes online free state For nonresident aliens, this only applies to income derived from, or in connection with, an aircraft. File taxes online free state For information on how U. File taxes online free state S. File taxes online free state source transportation income is taxed, see chapter 4. File taxes online free state Scholarships, Grants, Prizes, and Awards Generally, the source of scholarships, fellowship grants, grants, prizes, and awards is the residence of the payer regardless of who actually disburses the funds. File taxes online free state However, see Activities to be performed outside the United States , later. File taxes online free state For example, payments for research or study in the United States made by the United States, a noncorporate U. File taxes online free state S. File taxes online free state resident, or a domestic corporation, are from U. File taxes online free state S. File taxes online free state sources. File taxes online free state Similar payments from a foreign government or foreign corporation are foreign source payments even though the funds may be disbursed through a U. File taxes online free state S. File taxes online free state agent. File taxes online free state Payments made by an entity designated as a public international organization under the International Organizations Immunities Act are from foreign sources. File taxes online free state Activities to be performed outside the United States. File taxes online free state   Scholarships, fellowship grants, targeted grants, and achievement awards received by nonresident aliens for activities performed, or to be performed, outside the United States are not U. File taxes online free state S. File taxes online free state source income. File taxes online free state    These rules do not apply to amounts paid as salary or other compensation for services. File taxes online free state See Personal Services, earlier, for the source rules that apply. File taxes online free state Pensions and Annuities If you receive a pension from a domestic trust for services performed both in and outside the United States, part of the pension payment is from U. File taxes online free state S. File taxes online free state sources. File taxes online free state That part is the amount attributable to earnings of the pension plan and the employer contributions made for services performed in the United States. File taxes online free state This applies whether the distribution is made under a qualified or nonqualified stock bonus, pension, profit-sharing, or annuity plan (whether or not funded). File taxes online free state If you performed services as an employee of the United States, you may receive a distribution from the U. File taxes online free state S. File taxes online free state Government under a plan, such as the Civil Service Retirement System, that is treated as a qualified pension plan. File taxes online free state Your U. File taxes online free state S. File taxes online free state source income is the otherwise taxable amount of the distribution that is attributable to your total U. File taxes online free state S. File taxes online free state Government basic pay other than tax-exempt pay for services performed outside the United States. File taxes online free state Rents or Royalties Your U. File taxes online free state S. File taxes online free state source income includes rent and royalty income received during the tax year from property located in the United States or from any interest in that property. File taxes online free state U. File taxes online free state S. File taxes online free state source income also includes rents or royalties for the use of, or for the privilege of using, in the United States, intangible property such as patents, copyrights, secret processes and formulas, goodwill, trademarks, franchises, and similar property. File taxes online free state Real Property Real property is land and buildings and generally anything built on, growing on, or attached to land. File taxes online free state Gross income from sources in the United States includes gains, profits, and income from the sale or other disposition of real property located in the United States. File taxes online free state Natural resources. File taxes online free state   The income from the sale of products of any farm, mine, oil or gas well, other natural deposit, or timber located in the United States and sold in a foreign country, or located in a foreign country and sold in the United States, is partly from sources in the United States. File taxes online free state For information on determining that part, see section 1. File taxes online free state 863-1(b) of the regulations. File taxes online free state Table 2-1. File taxes online free state Summary of Source Rules for Income of Nonresident Aliens Item of income Factor determining source Salaries, wages, other compensation Where services performed Business income:   Personal services Where services performed Sale of inventory—purchased Where sold Sale of inventory—produced Allocation Interest Residence of payer Dividends Whether a U. File taxes online free state S. File taxes online free state or foreign corporation* Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. File taxes online free state Where property is used Sale of real property Location of property Sale of personal property Seller's tax home (but see Personal Property , later, for exceptions) Pension distributions attributable to contributions Where services were performed that earned the pension Investment earnings on pension contributions Location of pension trust Sale of natural resources Allocation based on fair market value of product at export terminal. File taxes online free state For more information, see section 1. File taxes online free state 863-1(b) of the regulations. File taxes online free state *Exceptions include: a) Dividends paid by a U. File taxes online free state S. File taxes online free state corporation are foreign source if the corporation elects the  American Samoa economic development credit. File taxes online free state  b) Part of a dividend paid by a foreign corporation is U. File taxes online free state S. File taxes online free state source if at least 25% of the  corporation's gross income is effectively connected with a U. File taxes online free state S. File taxes online free state trade or business for the  3 tax years before the year in which the dividends are declared. File taxes online free state Personal Property Personal property is property, such as machinery, equipment, or furniture, that is not real property. File taxes online free state Gain or loss from the sale or exchange of personal property generally has its source in the United States if you have a tax home in the United States. File taxes online free state If you do not have a tax home in the United States, the gain or loss generally is considered to be from sources outside the United States. File taxes online free state Tax home. File taxes online free state   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. File taxes online free state Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. File taxes online free state If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. File taxes online free state If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. File taxes online free state Inventory property. File taxes online free state   Inventory property is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. File taxes online free state Income from the sale of inventory that you purchased is sourced where the property is sold. File taxes online free state Generally, this is where title to the property passes to the buyer. File taxes online free state For example, income from the sale of inventory in the United States is U. File taxes online free state S. File taxes online free state source income, whether you purchased it in the United States or in a foreign country. File taxes online free state   Income from the sale of inventory property that you produced in the United States and sold outside the United States (or vice versa) is partly from sources in the United States and partly from sources outside the United States. File taxes online free state For information on making this allocation, see section 1. File taxes online free state 863-3 of the regulations. File taxes online free state   These rules apply even if your tax home is not in the United States. File taxes online free state Depreciable property. File taxes online free state   To determine the source of any gain from the sale of depreciable personal property, you must first figure the part of the gain that is not more than the total depreciation adjustments on the property. File taxes online free state You allocate this part of the gain to sources in the United States based on the ratio of U. File taxes online free state S. File taxes online free state depreciation adjustments to total depreciation adjustments. File taxes online free state The rest of this part of the gain is considered to be from sources outside the United States. File taxes online free state   For this purpose, “U. File taxes online free state S. File taxes online free state depreciation adjustments” are the depreciation adjustments to the basis of the property that are allowable in figuring taxable income from U. File taxes online free state S. File taxes online free state sources. File taxes online free state However, if the property is used predominantly in the United States during a tax year, all depreciation deductions allowable for that year are treated as U. File taxes online free state S. File taxes online free state depreciation adjustments. File taxes online free state But there are some exceptions for certain transportation, communications, and other property used internationally. File taxes online free state   Gain from the sale of depreciable property that is more than the total depreciation adjustments on the property is sourced as if the property were inventory property, as discussed above. File taxes online free state   A loss is sourced in the same way as the depreciation deductions were sourced. File taxes online free state However, if the property was used predominantly in the United States, the entire loss reduces U. File taxes online free state S. File taxes online free state source income. File taxes online free state   The basis of property usually means the cost (money plus the fair market value of other property or services) of property you acquire. File taxes online free state Depreciation is an amount deducted to recover the cost or other basis of a trade or business asset. File taxes online free state The amount you can deduct depends on the property's cost, when you began using the property, how long it will take to recover your cost, and which depreciation method you use. File taxes online free state A depreciation deduction is any deduction for depreciation or amortization or any other allowable deduction that treats a capital expenditure as a deductible expense. File taxes online free state Intangible property. File taxes online free state   Intangible property includes patents, copyrights, secret processes or formulas, goodwill, trademarks, trade names, or other like property. File taxes online free state The gain from the sale of amortizable or depreciable intangible property, up to the previously allowable amortization or depreciation deductions, is sourced in the same way as the original deductions were sourced. File taxes online free state This is the same as the source rule for gain from the sale of depreciable property. File taxes online free state See Depreciable property , earlier, for details on how to apply this rule. File taxes online free state   Gain in excess of the amortization or depreciation deductions is sourced in the country where the property is used if the income from the sale is contingent on the productivity, use, or disposition of that property. File taxes online free state If the income is not contingent on the productivity, use, or disposition of the property, the income is sourced according to your tax home as discussed earlier. File taxes online free state If payments for goodwill do not depend on its productivity, use, or disposition, their source is the country in which the goodwill was generated. File taxes online free state Sales through offices or fixed places of business. File taxes online free state   Despite any of the earlier rules, if you do not have a tax home in the United States, but you maintain an office or other fixed place of business in the United States, treat the income from any sale of personal property (including inventory property) that is attributable to that office or place of business as U. File taxes online free state S. File taxes online free state source income. File taxes online free state However, this rule does not apply to sales of inventory property for use, disposition, or consumption outside the United States if your office or other fixed place of business outside the United States materially participated in the sale. File taxes online free state   If you have a tax home in the United States but maintain an office or other fixed place of business outside the United States, income from sales of personal property, other than inventory, depreciable property, or intangibles, that is attributable to that foreign office or place of business may be treated as U. File taxes online free state S. File taxes online free state source income. File taxes online free state The income is treated as U. File taxes online free state S. File taxes online free state source income if an income tax of less than 10% of the income from the sale is paid to a foreign country. File taxes online free state This rule also applies to losses if the foreign country would have imposed an income tax of less than 10% had the sale resulted in a gain. File taxes online free state Community Income If you are married and you or your spouse is subject to the community property laws of a foreign country, a U. File taxes online free state S. File taxes online free state state, or a U. File taxes online free state S. File taxes online free state possession, you generally must follow those laws to determine the income of yourself and your spouse for U. File taxes online free state S. File taxes online free state tax purposes. File taxes online free state But you must disregard certain community property laws if: Both you and your spouse are nonresident aliens, or One of you is a nonresident alien and the other is a U. File taxes online free state S. File taxes online free state citizen or resident and you do not both choose to be treated as U. File taxes online free state S. File taxes online free state residents as explained in chapter 1. File taxes online free state In these cases, you and your spouse must report community income as explained later. File taxes online free state Earned income. File taxes online free state   Earned income of a spouse, other than trade or business income and a partner's distributive share of partnership income, is treated as the income of the spouse whose services produced the income. File taxes online free state That spouse must report all of it on his or her separate return. File taxes online free state Trade or business income. File taxes online free state   Trade or business income, other than a partner's distributive share of partnership income, is treated as the income of the spouse carrying on the trade or business. File taxes online free state That spouse must report all of it on his or her separate return. File taxes online free state Partnership income (or loss). File taxes online free state   A partner's distributive share of partnership income (or loss) is treated as the income (or loss) of the partner. File taxes online free state The partner must report all of it on his or her separate return. File taxes online free state Separate property income. File taxes online free state   Income derived from the separate property of one spouse (and which is not earned income, trade or business income, or partnership distributive share income) is treated as the income of that spouse. File taxes online free state That spouse must report all of it on his or her separate return. File taxes online free state Use the appropriate community property law to determine what is separate property. File taxes online free state Other community income. File taxes online free state   All other community income is treated as provided by the applicable community property laws. File taxes online free state Prev  Up  Next   Home   More Online Publications

.gov Reform Effort: Improving Federal Websites

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Digital Government Strategy

The White House released its Digital Government Strategy, entitled Digital Government: Building a 21st Century Platform to Better Serve the American People, on May 23, 2012. You can also download the Digital Government Strategy as a PDF.

The strategy is a plan for delivering better online service to the American people, with three main objectives:

  • Enable citizens and an increasingly mobile workforce to access high-quality digital government information and services anywhere, anytime, on any device.
  • Ensure that as the government adjusts to this new digital world, we seize the opportunity to procure and manage devices, applications, and data in smart, secure and affordable ways.
  • Unlock the power of government data to spur innovation across our Nation and improve the quality of services for the American people.

The Digital Government Strategy was created from a broad range of input across government: the Mobility Strategy and Web Reform Task Forces, the Office of Management and Budget, the General Services Administration, Federal CIOs, new media directors, and web managers. The Strategy also draws on research from the State of the Federal Web Report (PDF) and public input from the National Dialogue for Improving Federal Websites and the National Dialogue on the Federal Mobility Strategy.

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What is the .gov reform effort?

The .gov reform effort began in 2011 as part of President Obama's Campaign to Cut Waste, identifying unnecessary websites that can be consolidated into other websites to reduce costs and improve the quality of service to the American public.

The reform effort led to the development of a federal web strategy, which was merged with the federal mobility strategy to create the Digital Government Strategy. This broader initiative focuses not only on website consolidation, but also on innovating with less and delivering better quality content and information to the public across multiple platforms and devices.

What is the federal government doing to improve federal websites?

In the June 13, 2011, OMB Memorandum M-11-24, Implementing Executive Order 13571 on Streamlining Service Delivery and Improving Customer Service (PDF), agencies are directed to improve online services and eliminate wasteful spending. They must work to manage web resources more efficiently and assure that valuable content is readily accessible and available online. To date, the reform effort has:

  • Instituted a freeze on the approval of new .gov domain names and developed stronger criteria for getting a new domain.
  • Set up the .gov Reform Task Force to recommend updates to federal web guidelines and policies.
  • Posted and updated a list of all registered .gov domain names on Data.gov.
  • Asked agencies to identify sites that can be eliminated, consolidated, and/or streamlined.
  • Conducted an inventory of federal domains and sites, a survey of federal web governance policies and a national dialogue on improving federal web sites, and used the data to create the State of the Federal Web report.
  • Required agencies to develop Web Improvement Plans (included in the State of the Federal Web Report).
  • Worked with others across government to develop the Digital Government Strategy.

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Who's responsible for managing this effort?

The Office of Management and Budget (OMB), the General Services Administration (GSA), the Office of Science and Technology Policy (OSTP), the Chief Information Officers Council, and the Federal Web Managers Council are working with agencies to manage this effort. The .gov Task Force, whose members are listed below, is leading this effort.

Where can I see a list of federal websites?

The list of federal executive branch .gov domains was published July 12, 2011 on Data.gov. It does not include .gov domains/URLs in the federal legislative or judicial branches or from state, local, or tribal governments. It also does not include sub-domains that are below the root domain, such as ers.usda.gov or niaid.nih.gov.

Since each domain can have an unlimited number of potential websites and URLs under them, the total number of websites in the entire federal government is much larger than the number of domains listed on Data.gov. The inventory will allow us to more closely identify the total number of federal websites over time.

The list of domains will be regularly updated and published on Data.gov. Putting the list on Data.gov will have several benefits:

  • Provide increased access to, and transparency of, government data.
  • Foster accountability in how we manage our federal websites and encourage input from public and private sector experts, customers, developers, and other members of the public.
  • Make it easier for agencies to see the websites they own, that are owned by other agencies, and to increase opportunities for collaboration across government.

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Who is on the .gov Task Force and how were they selected?

The Federal Chief Information Officer selected the members of the .gov Task Force, representing a broad range of agencies and a mix of perspectives and skills.

Task force members:

  • Les Benito, Director, Public Web at Defense Media Activity
  • Gray Brooks, Associate CIO, Federal Communications Commission
  • Sheila Campbell, Director, Center for Excellence in Digital Government, Office of Citizen Services, General Services Administration
  • Sarah Crane, Director, USA.gov, Office of Citizen Services, General Services Administration
  • Cammie Croft, Senior Advisor, Director of New Media and Citizen Engagement, Department of Energy
  • Linda Cureton, Chief Information Officer, NASA
  • Terry Davis, IT Specialist, Department of Defense
  • Nick Fraser, Office of Information and Regulatory Affairs, Office of Management and Budget, Executive Office of the President
  • Miguel Gomez, Director, AIDS.gov, Health and Human Services
  • Jeffrey Levy, Director of Web Communications, Environmental Protection Agency, and Co-Chair, Federal Web Managers Council
  • Dan Munz, IT Specialist, Consumer Financial Protection Bureau
  • Adam Neufeld, Office of Management and Budget, Executive Office of the President
  • Todd Park, U.S. Chief Technology Officer
  • Macon Phillips, Director of Digital Strategy, The White House
  • Stacy Riggs, Office of Government-wide Policy, General Services Administration
  • Rand Ruggieri, EGov Program Manager, Department of Commerce
  • Janet Stevens, Chief Information Officer, Food Safety and Inspection Service, Department of Agriculture
  • Kodiak Starr, Creative Director of New Media, Executive Office of the President
  • Haley Van Dyck, Office of E-Gov and Information Technology, Office of Management and Budget, Executive Office of the President
  • Chris Vein, Deputy U.S. Chief Technology Officer for Government Innovation, Office of Science and Technology Policy, Executive Office of the President
  • Jim Wilson, Senior Editor, NASA.gov

We plan to consult with additional subject matter experts, customers, and others as needed, to provide expertise on such areas as user-centered design, search, information management policy, privacy and security issues, and overall Internet trends such as the growth of mobile and social media.

How was the public involved in improving federal websites?

During this initiative we've invited you to join the conversation about improving federal websites. Releasing the .gov dataset on Data.gov was the first step. We enabled commenting on the dataset, and considered your ideas and comments as we developed the domain inventory.

As we've seen in other efforts, making government data transparent can spark the creativity of many bright minds across the country. We hope the public will continue to explore, discuss, and remix this data, and maybe even use it to map the .gov domain in ways we haven't seen before.

From September 19–30, 2011, we hosted a "national dialogue"–an online conversation that brought together experts, innovators, and ordinary citizens who rely on federal information every day. We discussed how federal agencies can learn from, and contribute to, the best practices of the modern web. It was a discussion filled with ideas and energy.

If you have questions about the .gov Task Force, contact Alycia Piazza at alycia.piazza@gsa.gov.

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Content Lead: Natalie Davidson and Andrea Sigritz
Page Reviewed/Updated: October 22, 2013

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The File Taxes Online Free State

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