File your Taxes for Free!
  • Get your maximum refund*
  • 100% accurate calculations guaranteed*

TurboTax Federal Free Edition - File Taxes Online

Don't let filing your taxes get you down! We'll help make it as easy as possible. With e-file and direct deposit, there's no faster way to get your refund!

Approved TurboTax Affiliate Site. TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.


© 2012 - 2018 All rights reserved.

This is an Approved TurboTax Affiliate site. TurboTax and TurboTax Online, among other are registered trademarks and/or service marks of Intuit, Inc. in the United States and other countries. Other parties' trademarks or service marks are the property of the respective owners.
When discussing "Free e-file", note that state e-file is an additional fee. E-file fees do not apply to New York state returns. Prices are subject to change without notice. E-file and get your refund faster
*If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
*Maximum Refund Guarantee - or Your Money Back: If you get a larger refund or smaller tax due from another tax preparation method, we'll refund the applicable TurboTax federal and/or state purchase price paid. TurboTax Federal Free Edition customers are entitled to payment of $14.99 and a refund of your state purchase price paid. Claims must be submitted within sixty (60) days of your TurboTax filing date and no later than 6/15/14. E-file, Audit Defense, Professional Review, Refund Transfer and technical support fees are excluded. This guarantee cannot be combined with the TurboTax Satisfaction (Easy) Guarantee. *We're so confident your return will be done right, we guarantee it. Accurate calculations guaranteed. If you pay an IRS or state penalty or interest because of a TurboTax calculations error, we'll pay you the penalty and interest.
https://turbotax.intuit.com/corp/guarantees.jsp

Free State Tax Preparation Sites

Free Online Tax FilingCan I Still File My 2012 TaxesFree 1040x Tax FormsStudent TaxesInternal Revenue Tax Forms 2012How To Fill Out A 1040ez FormHow To File An Amendment To 2011 TaxesIrs Tax Extentions1040ez Filing2014 Federal Tax Forms 1040ez1040ez DownloadEz Tax FormAmend My Taxes Free OnlineIt1040ezTax Return2010 Tax Return2012 Tax SoftwareCan You E File A 1040xFree File TaxesWhat If I Didn T File Taxes In 20111040 Ez Tax FormsTurbo Tax 1040ezFree 2010 Tax Software DownloadHow Do You File A Tax Extension For FreeHow To E-file 2012 TaxesHow To File A 1040x With TurbotaxFree Federal Tax ReturnH And R Block File OnlineFile Tax Return1040nr Tax FormHow Do I File An Amended Tax ReturnE File State Taxes For FreeCan I Efile 1040nrIrs Tax Forms 20101040ezE File Back TaxesH And R Block File FreeTaxact 2013Dfas MilIrs Tax Forms For 2009

Free State Tax Preparation Sites

Free state tax preparation sites Index A Abandonments, Abandonments Annuities, Insurance Policies and Annuities Asset classification Capital, Capital Assets Noncapital, Noncapital Assets Assistance (see Tax help) Assumption of liabilities, Assumption of liabilities. Free state tax preparation sites , Liabilities. Free state tax preparation sites B Basis Adjusted, Adjusted basis. Free state tax preparation sites Original, Basis. Free state tax preparation sites Bonds, U. Free state tax preparation sites S. Free state tax preparation sites Treasury, U. Free state tax preparation sites S. Free state tax preparation sites Treasury Notes or Bonds Business, sold, Sale of a Business C Canceled Debt, Cancellation of debt. Free state tax preparation sites Lease, Cancellation of a lease. Free state tax preparation sites Real property sale, Canceling a sale of real property. Free state tax preparation sites Capital assets defined, Capital Assets Capital gains and losses Figuring, Long and Short Term Holding period, Holding period. Free state tax preparation sites Long term, Long and Short Term Short term, Long and Short Term Treatment of capital losses, Treatment of Capital Losses Casualties, Section 1231 transactions. Free state tax preparation sites Charitable organization Bargain sale to, Bargain sales to charity. Free state tax preparation sites , Bargain sale to charity. Free state tax preparation sites Gift to, Gift to charitable organization. Free state tax preparation sites Classes of assets, Classes of assets. Free state tax preparation sites Coal, Coal and Iron Ore Coins, Precious Metals and Stones, Stamps, and Coins Comments, Comments and suggestions. Free state tax preparation sites Commodities derivative financial instruments, Commodities derivative financial instrument. Free state tax preparation sites Condemnations, Condemnations, Section 1231 transactions. Free state tax preparation sites Conversion transactions, Conversion Transactions Copyrights, Copyright. Free state tax preparation sites , Copyrights. Free state tax preparation sites Covenant not to compete, Covenant not to compete. Free state tax preparation sites D Debt cancellation, Cancellation of debt. Free state tax preparation sites , Cancellation of debt. Free state tax preparation sites Deferred exchange, Deferred Exchange Depreciable property Real, Depreciable real property. Free state tax preparation sites Records, Depreciation Recapture Section 1245, Section 1245 property defined. Free state tax preparation sites , Like-Kind Exchanges and Involuntary Conversions Section 1250, Section 1250 property defined. Free state tax preparation sites Depreciation recapture Personal property, Section 1245 Property Real property, Section 1250 property defined. Free state tax preparation sites E Easement, Easement. Free state tax preparation sites Exchanges Deferred, Deferred Exchange Involuntary, Involuntary Conversions Like-kind, Like-Kind Exchanges, Like-Kind Exchanges and Involuntary Conversions Nontaxable, Nontaxable Exchanges Related persons, Related persons. Free state tax preparation sites U. Free state tax preparation sites S. Free state tax preparation sites Treasury notes or bonds, U. Free state tax preparation sites S. Free state tax preparation sites Treasury Notes or Bonds F Fair market value, Fair market value. Free state tax preparation sites Foreclosure, Foreclosures and Repossessions Form 1040 (Sch. Free state tax preparation sites D), Schedule D and Form 8949 1099-A, Forms 1099-A and 1099-C. Free state tax preparation sites , Forms 1099-A and 1099-C. Free state tax preparation sites 1099-B, Form 1099-B. Free state tax preparation sites 1099-C, Forms 1099-A and 1099-C. Free state tax preparation sites , Forms 1099-A and 1099-C. Free state tax preparation sites 1099-S, Form 1099-S. Free state tax preparation sites 4797, Business property. Free state tax preparation sites , Reporting the exchange. Free state tax preparation sites , Form 4797 8594, Reporting requirement. Free state tax preparation sites 8824, Reporting the exchange. Free state tax preparation sites 8949, Forms to file. Free state tax preparation sites , Personal-use property. Free state tax preparation sites , Reporting the exchange. Free state tax preparation sites , More information. Free state tax preparation sites , Timber, Introduction, Form 1099-B. Free state tax preparation sites , Personal-use property. Free state tax preparation sites , Mark-to-market election. Free state tax preparation sites Franchise, Franchise, Trademark, or Trade Name Free tax services, Free help with your tax return. Free state tax preparation sites G Gains and losses Bargain sale, Bargain Sale Business property, Ordinary or Capital Gain or Loss for Business Property Defined, Gain or Loss From Sales and Exchanges Form 4797, Form 4797 Ordinary or capital, Ordinary or Capital Gain or Loss Property changed to business or rental use, Property Changed to Business or Rental Use Property used partly for rental, Property Used Partly for Business or Rental Reporting, Reporting Gains and Losses Gifts of property, Gifts, Gift. Free state tax preparation sites Gold, Precious Metals and Stones, Stamps, and Coins H Hedging transactions, Hedging transaction. Free state tax preparation sites Help (see Tax help) Holding period, Holding period. Free state tax preparation sites Housing, low income, Low-income housing. Free state tax preparation sites , Low-Income Housing With Two or More Elements I Indirect ownership of stock, Ownership of stock or partnership interests. Free state tax preparation sites Information returns, Information Returns Inherited property, Inherited property. Free state tax preparation sites Installment sales, Installment Sales, Installment sale. Free state tax preparation sites Insurance policies, Insurance Policies and Annuities Intangible property, Dispositions of Intangible Property Involuntary conversion Defined, Involuntary Conversions Depreciable property, Like-Kind Exchanges and Involuntary Conversions Iron ore, Coal and Iron Ore L Land Release of restriction, Release of restriction on land. Free state tax preparation sites Subdivision, Subdivision of Land Lease, cancellation of, Cancellation of a lease. Free state tax preparation sites Liabilities, assumption, Liabilities. Free state tax preparation sites Like-kind exchanges Deferred, Deferred Exchange Liabilities, assumed, Assumption of liabilities. Free state tax preparation sites Like-class property, Like-Kind Property Like-kind property, Like-Kind Property Multiple parties, Multiple-party transactions. Free state tax preparation sites Multiple property, Multiple Property Exchanges Partnership interests, Partnership Interests Qualifying property, Qualifying Property Related persons, Like-Kind Exchanges Between Related Persons Low-income housing, Low-income housing. Free state tax preparation sites M Multiple property exchanges, Multiple Property Exchanges N Noncapital assets defined, Noncapital Assets Nontaxable exchanges Like-kind, Like-Kind Exchanges Other nontaxable exchanges, Other Nontaxable Exchanges Partially, Partially Nontaxable Exchanges Property exchanged for stock, Property Exchanged for Stock Notes, U. Free state tax preparation sites S. Free state tax preparation sites Treasury, U. Free state tax preparation sites S. Free state tax preparation sites Treasury Notes or Bonds O Ordinary or capital gain, Ordinary or Capital Gain or Loss P Partially nontaxable exchanges, Partially Nontaxable Exchanges Partnership Controlled, Controlled partnership transaction. Free state tax preparation sites Related persons, Related persons. Free state tax preparation sites , Controlled entity. Free state tax preparation sites Sale or exchange of interest, Partnership Interests, Partnership interests. Free state tax preparation sites , Partnership interests. Free state tax preparation sites Patents, Patents Personal property Depreciable, Like-Kind Exchanges and Involuntary Conversions Gains and losses, Personal-use property. Free state tax preparation sites Transfer at death, Transfers at Death Precious metals and stones, Precious Metals and Stones, Stamps, and Coins Property used partly for business or rental, Property Used Partly for Business or Rental, Part business or rental. Free state tax preparation sites Publications (see Tax help) Publicly traded securities, rollover of gain from, Rollover of Gain From Publicly Traded Securities R Real property Depreciable, Depreciable real property. Free state tax preparation sites Transfer at death, Transfers at Death Related persons, Sales and Exchanges Between Related Persons Condemned property replacement, bought from, Buying replacement property from a related person. Free state tax preparation sites Gain on sale of property, Sales and Exchanges Between Related Persons Like-kind exchanges between, Like-Kind Exchanges Between Related Persons List, Related persons. Free state tax preparation sites Loss on sale of property, Nondeductible Loss Patent transferred to, Related persons. Free state tax preparation sites Replacement property, Replacement property. Free state tax preparation sites , Replacement property to be produced. Free state tax preparation sites Repossession, Foreclosures and Repossessions, Repossession. Free state tax preparation sites Residual method, sale of business, Residual method. Free state tax preparation sites Rollover of gain, Rollover of Gain From Publicly Traded Securities S Sale of a business, Sale of a Business Sales Bargain, charitable organization, Bargain sales to charity. Free state tax preparation sites , Bargain sale to charity. Free state tax preparation sites Installment, Installment Sales, Installment sale. Free state tax preparation sites Property changed to business or rental use, Property Changed to Business or Rental Use Related persons, Sales and Exchanges Between Related Persons, Related persons. Free state tax preparation sites Section 1231 gains and losses, Section 1231 Gains and Losses Section 1245 property Defined, Section 1245 Property Gain, ordinary income, Gain Treated as Ordinary Income Multiple asset accounts, Multiple asset accounts. Free state tax preparation sites Section 1250 property Additional depreciation, Additional Depreciation Defined, Section 1250 property defined. Free state tax preparation sites Foreclosure, Foreclosure. Free state tax preparation sites Gain, ordinary income, Gain Treated as Ordinary Income Nonresidential, Nonresidential real property. Free state tax preparation sites Residential, Residential rental property. Free state tax preparation sites Section 197 intangibles, Section 197 Intangibles Severance damages, Severance damages. Free state tax preparation sites Silver, Precious Metals and Stones, Stamps, and Coins Small business stock, Gains on Sales of Qualified Small Business Stock Specialized small business investment company (SSBIC), rollover of gain into, Rollover of Gain From Publicly Traded Securities Stamps, Precious Metals and Stones, Stamps, and Coins Stock Capital asset, Capital Assets Controlling interest, corporation, Controlling interest in a corporation. Free state tax preparation sites Indirect ownership, Ownership of stock or partnership interests. Free state tax preparation sites Property exchanged for, Property Exchanged for Stock Publicly traded securities, Rollover of Gain From Publicly Traded Securities Small business, Gains on Sales of Qualified Small Business Stock Suggestions, Comments and suggestions. Free state tax preparation sites T Tax help, How To Get Tax Help Tax rates, capital gain, Capital Gains Tax Rates Thefts, Section 1231 transactions. Free state tax preparation sites Timber, Timber, Section 1231 transactions. Free state tax preparation sites Trade name, Franchise, Trademark, or Trade Name Trademark, Franchise, Trademark, or Trade Name Transfers to spouse, Transfers to Spouse U U. Free state tax preparation sites S. Free state tax preparation sites Treasury bonds, U. Free state tax preparation sites S. Free state tax preparation sites Treasury Notes or Bonds Unharvested crops, Section 1231 transactions. Free state tax preparation sites Prev  Up     Home   More Online Publications
Print - Click this link to Print this page

Tax Relief in Disaster Situations

Recent Tax Relief

  • Colorado victims of September 2013 floods, see news release
  • Illinois victims of November 2013 storms and flooding, see news release
  • Colorado victims of September 2013 storms and flooding, see news release
  • Alaska victims of May 2013 flooding, see news release
  • Oklahoma victims of May 2013 tornado see news release
  • Illinois victims of April 16, 2013 storms, tornadoes and flooding, see news release
  • Mississippi victims of February 10, 2013 storms, tornadoes and flooding, see news release
  • West Virginia victims of June 2012 storms and straight-line winds, see news release
  • Oklahoma victims of Freedom Wildfire that began on Aug. 3, 2012, see news release
  • Florida victims of June 2012 Tropical Storm Debby, see news release 
  • West Virginia victims of March 2012 storms, see news release
  • Tennessee victims of February 2012 storms, see news release
  • West Virginia victims of February 2012 storms, see news release
  • Indiana victims of February 2012 storms, see news release
  • Kentucky victims of February 2012 storms, see news release
  • Alabama victims of January 2012 storms, see news release
  • Virginia victims of August 2011 earthquake, see news release
  • Puerto Rico victims of September 2011 Tropical Storm Maria, see news release
  • Iowa victims of May 2011 flooding, see news release
  • New York victims of September 2011 remnants of Tropical Storm Lee, see news release
  • Pennsylvania victims of September 2011 Tropical Storm Lee, see news release
  • Texas victims of August 2011 wildfires, see news release
  • Kentucky victims of June 2011 severe storms, see news release
  • South Dakota victims of March 2011 flooding, see news release
  • Missouri victims of June flooding, see news release
  • Nebraska victims of May flooding, see news release
  • Montana victims of April 2011 storms and flooding, see news release

Relief for Victims of Hurricane Sandy

The IRS is in the process of providing tax relief to victims of Hurricane Sandy in the Mid-Atlantic and Northeastern United States. So far, IRS filing and payment relief applies to the following localities:

  • Tax Relief in Connecticut: Fairfield, Middlesex, New Haven and New London counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;
  • Tax Relief in Maryland: Somerset County;
  • Tax Relief in New Jersey: Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren counties;
  • Tax Relief in New York: Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester counties;
  • Tax Relief in Rhode Island: Newport and Washington counties.

The IRS also announced additional tax relief to certain affected individuals and businesses, further extending tax deadlines of that relief until April 1 for the following localities:

  • In New Jersey: Monmouth and Ocean counties.
  • In New York: Nassau, Queens, Richmond and Suffolk counties.

The IRS filing and payment relief will be updated based on FEMA's declarations of individual assistance. Visit the page Help for Victims of Hurricane Sandy for additional information on IRS relief for victims of Hurricane Sandy.
 


Relief for Victims of Hurricane Isaac

The IRS has provided tax relief to victims of Hurricane Isaac. Relief for taxpayers in various locations, including postponement of filing and payment deadlines, is listed here. 

For information on disaster recovery, visit disasterassistance.gov.
 


Relief for Victims of Hurricane Irene

The IRS is in the process of providing tax relief to victims of Hurricane Irene. Relief for taxpayers in various locations, including postponement of filing and payment deadlines, will be listed here as it is announced. Watch this page for updates.

Update: IRS e-File, Free File to Remain Available to Victims of Irene, Lee and Texas Wildfires through Oct. 31.

 


Tax Relief for Hurricane Katrina, Rita and Wilma Victims

The Housing and Economic Recovery Act of 2008 offers a new option to homeowners who previously claimed a casualty loss deduction resulting from hurricanes Katrina, Rita and Wilma. See the news release, notice and questions and answers for further details.

The IRS offers tax assistance to victims of the 2005 Gulf Coast hurricanes.

 


Don't See What You're Looking For?

 

Page Last Reviewed or Updated: 25-Mar-2014

The Free State Tax Preparation Sites

Free state tax preparation sites Publication 523 - Main Content Table of Contents Main HomeVacant land. Free state tax preparation sites Factors used to determine main home. Free state tax preparation sites Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining BasisCost As Basis Basis Other Than Cost Adjusted Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Nonqualified Use Business Use or Rental of HomeUnrecaptured section 1250 gain. Free state tax preparation sites Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. Free state tax preparation sites Individual taxpayer identification number (ITIN). Free state tax preparation sites More information. Free state tax preparation sites Comprehensive Examples Special SituationsException for sales to related persons. Free state tax preparation sites Deducting Taxes in the Year of SaleForm 1099-S. Free state tax preparation sites More information. Free state tax preparation sites Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. Free state tax preparation sites Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. Free state tax preparation sites ” Usually, the home you live in most of the time is your main home and can be a: House, Houseboat, Mobile home, Cooperative apartment, or Condominium. Free state tax preparation sites To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Free state tax preparation sites Land. Free state tax preparation sites   If you sell the land on which your main home is located, but not the house itself, you cannot exclude any gain you have from the sale of the land. Free state tax preparation sites Example. Free state tax preparation sites You buy a piece of land and move your main home to it. Free state tax preparation sites Then, you sell the land on which your main home was located. Free state tax preparation sites This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Free state tax preparation sites Vacant land. Free state tax preparation sites   The sale of vacant land is not a sale of your main home unless: The vacant land is adjacent to land containing your home, You owned and used the vacant land as part of your main home, The separate sale of your home satisfies the requirements for exclusion and occurs within 2 years before or 2 years after the date of the sale of the vacant land, and The other requirements for excluding gain from the sale of a main home have been satisfied with respect to the vacant land. Free state tax preparation sites If these requirements are met, the sale of the home and the sale of the vacant land are treated as one sale and only one maximum exclusion can be applied to any gain. Free state tax preparation sites See Excluding the Gain , later. Free state tax preparation sites The destruction of your home is treated as a sale of your home. Free state tax preparation sites As a result, you may be able to meet these requirements if you sell vacant land used as a part of your main home within 2 years from the date of the destruction of your main home. Free state tax preparation sites For information, see Publication 547. Free state tax preparation sites More than one home. Free state tax preparation sites   If you have more than one home, you can exclude gain only from the sale of your main home. Free state tax preparation sites You must include in income the gain from the sale of any other home. Free state tax preparation sites If you have two homes and live in each of them, your main home is ordinarily the one you live in most of the time during the year. Free state tax preparation sites Example 1. Free state tax preparation sites You own two homes, one in New York and one in Florida. Free state tax preparation sites From 2009 through 2013, you live in the New York home for 7 months and in the Florida residence for 5 months of each year. Free state tax preparation sites In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Free state tax preparation sites You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Free state tax preparation sites Example 2. Free state tax preparation sites You own a house, but you live in another house that you rent. Free state tax preparation sites The rented house is your main home. Free state tax preparation sites Example 3. Free state tax preparation sites You own two homes, one in Virginia and one in New Hampshire. Free state tax preparation sites In 2009 and 2010, you lived in the Virginia home. Free state tax preparation sites In 2011 and 2012, you lived in the New Hampshire home. Free state tax preparation sites In 2013, you lived again in the Virginia home. Free state tax preparation sites Your main home in 2009, 2010, and 2013 is the Virginia home. Free state tax preparation sites Your main home in 2011 and 2012 is the New Hampshire home. Free state tax preparation sites You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Free state tax preparation sites Factors used to determine main home. Free state tax preparation sites   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. Free state tax preparation sites Those factors include the following. Free state tax preparation sites Your place of employment. Free state tax preparation sites The location of your family members' main home. Free state tax preparation sites Your mailing address for bills and correspondence. Free state tax preparation sites The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. Free state tax preparation sites The location of the banks you use. Free state tax preparation sites The location of recreational clubs and religious organizations of which you are a member. Free state tax preparation sites Property used partly as your main home. Free state tax preparation sites   If you use only part of the property as your main home, the rules discussed in this publication apply only to the gain or loss on the sale of that part of the property. Free state tax preparation sites For details, see Business Use or Rental of Home , later. Free state tax preparation sites Figuring Gain or Loss To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Free state tax preparation sites Subtract the adjusted basis from the amount realized to get your gain or loss. Free state tax preparation sites     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. Free state tax preparation sites   Gain is the excess of the amount realized over the adjusted basis of the property. Free state tax preparation sites Loss. Free state tax preparation sites   Loss is the excess of the adjusted basis over the amount realized for the property. Free state tax preparation sites Selling Price The selling price is the total amount you receive for your home. Free state tax preparation sites It includes money and the fair market value of any other property or any other services you receive and all notes, mortgages or other debts assumed by the buyer as part of the sale. Free state tax preparation sites Personal property. Free state tax preparation sites   The selling price of your home does not include amounts you received for personal property sold with your home. Free state tax preparation sites Personal property is property that is not a permanent part of the home. Free state tax preparation sites Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. Free state tax preparation sites Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). Free state tax preparation sites Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. Free state tax preparation sites Payment by employer. Free state tax preparation sites   You may have to sell your home because of a job transfer. Free state tax preparation sites If your employer pays you for a loss on the sale or for your selling expenses, do not include the payment as part of the selling price. Free state tax preparation sites Your employer will include it as wages in box 1 of your Form W-2 and you will include it in your income on Form 1040, line 7, or on Form 1040NR, line 8. Free state tax preparation sites Option to buy. Free state tax preparation sites   If you grant an option to buy your home and the option is exercised, add the amount you receive for the option to the selling price of your home. Free state tax preparation sites If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Free state tax preparation sites Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. Free state tax preparation sites Form 1099-S. Free state tax preparation sites   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. Free state tax preparation sites   However, box 2 will not include the fair market value of any services or property other than cash or notes you received or will receive. Free state tax preparation sites Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Free state tax preparation sites Amount Realized The amount realized is the selling price minus selling expenses. Free state tax preparation sites Selling expenses. Free state tax preparation sites   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Free state tax preparation sites ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Free state tax preparation sites This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Free state tax preparation sites For information on how to figure your home's adjusted basis, see Determining Basis , later. Free state tax preparation sites Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Free state tax preparation sites Gain on sale. Free state tax preparation sites   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, generally is taxable. Free state tax preparation sites Loss on sale. Free state tax preparation sites   If the amount realized is less than the adjusted basis, the difference is a loss. Free state tax preparation sites Generally, a loss on the sale of your main home cannot be deducted. Free state tax preparation sites Jointly owned home. Free state tax preparation sites   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Free state tax preparation sites Separate returns. Free state tax preparation sites   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Free state tax preparation sites Your ownership interest is generally determined by state law. Free state tax preparation sites Joint owners not married. Free state tax preparation sites   If you and a joint owner other than your spouse sell your jointly owned home, each of you must figure your own gain or loss according to your ownership interest in the home. Free state tax preparation sites Each of you applies the rules discussed in this publication on an individual basis. Free state tax preparation sites Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Free state tax preparation sites Foreclosure or repossession. Free state tax preparation sites   If your home was foreclosed on or repossessed, you have a disposition. Free state tax preparation sites See Publication 4681 to determine if you have ordinary income, gain, or loss. Free state tax preparation sites More information. Free state tax preparation sites   If part of a home is used for business or rental purposes, see Foreclosures and Repossessions in chapter 1 of Publication 544 for more information. Free state tax preparation sites Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. Free state tax preparation sites Abandonment. Free state tax preparation sites   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Free state tax preparation sites Trading (exchanging) homes. Free state tax preparation sites   If you trade your home for another home, treat the trade as a sale and a purchase. Free state tax preparation sites Example. Free state tax preparation sites You owned and lived in a home with an adjusted basis of $41,000. Free state tax preparation sites A real estate dealer accepted your old home as a trade-in and allowed you $50,000 toward a new home priced at $80,000. Free state tax preparation sites This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). Free state tax preparation sites If the dealer had allowed you $27,000 and assumed your unpaid mortgage of $23,000 on your old home, your sales price would still be $50,000 (the $27,000 trade-in allowed plus the $23,000 mortgage assumed). Free state tax preparation sites Transfer to spouse. Free state tax preparation sites   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss (unless the Exception, discussed next, applies). Free state tax preparation sites This is true even if you receive cash or other consideration for the home. Free state tax preparation sites As a result, the rules explained in this publication do not apply. Free state tax preparation sites   If you owned your home jointly with your spouse and transfer your interest in the home to your spouse, or to your former spouse incident to your divorce, the same rule applies. Free state tax preparation sites You have no gain or loss. Free state tax preparation sites Exception. Free state tax preparation sites   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. Free state tax preparation sites In that case, you generally will have a gain or loss. Free state tax preparation sites More information. Free state tax preparation sites    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. Free state tax preparation sites Involuntary conversion. Free state tax preparation sites   You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. Free state tax preparation sites This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations (see Home destroyed or condemned ). Free state tax preparation sites Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Free state tax preparation sites Your basis in your home is determined by how you got the home. Free state tax preparation sites Generally, your basis is its cost if you bought it or built it. Free state tax preparation sites If you got it in some other way (inheritance, gift, etc. Free state tax preparation sites ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Free state tax preparation sites While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Free state tax preparation sites The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. Free state tax preparation sites To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. Free state tax preparation sites Filled-in examples of that worksheet are included in the Comprehensive Examples , later. Free state tax preparation sites Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Free state tax preparation sites Purchase. Free state tax preparation sites   If you bought your home, your basis is its cost to you. Free state tax preparation sites This includes the purchase price and certain settlement or closing costs. Free state tax preparation sites In most cases, your purchase price includes your down payment and any debt, such as a first or second mortgage or notes you gave the seller in payment for the home. Free state tax preparation sites If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. Free state tax preparation sites Seller-paid points. Free state tax preparation sites   If the person who sold you your home paid points on your loan, you may have to reduce your home's basis by the amount of the points, as shown in the following chart. Free state tax preparation sites    IF you bought your home. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites THEN reduce your home's basis by the seller-paid points. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. Free state tax preparation sites after April 3, 1994 even if you did not deduct them. Free state tax preparation sites Settlement fees or closing costs. Free state tax preparation sites   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Free state tax preparation sites You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. Free state tax preparation sites A fee paid for buying the home is any fee you would have had to pay even if you paid cash for the home (that is, without the need for financing). Free state tax preparation sites   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Free state tax preparation sites   Some of the settlement fees or closing costs that you can include in your basis are: Abstract fees (abstract of title fees), Charges for installing utility services, Legal fees (including fees for the title search and preparing the sales contract and deed), Recording fees, Survey fees, Transfer or stamp taxes, Owner's title insurance, and Any amounts the seller owes that you agree to pay, such as: Certain real estate taxes (discussed later), Back interest, Recording or mortgage fees, Charges for improvements or repairs, and Sales commissions. Free state tax preparation sites   Some settlement fees and closing costs you cannot include in your basis are: Fire insurance premiums, Rent for occupancy of the house before closing, Charges for utilities or other services related to occupancy of the house before closing, Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994), Charges connected with getting a mortgage loan, such as: Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs), Loan assumption fees, Cost of a credit report, Fee for an appraisal required by a lender, and Fees for refinancing a mortgage. Free state tax preparation sites Real estate taxes. Free state tax preparation sites   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. Free state tax preparation sites    IF. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites AND. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites THEN the taxes. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites you pay taxes that the seller owed on the home up to the date of sale the seller does not reimburse you are added to the basis of your home. Free state tax preparation sites the seller reimburses you do not affect the basis of your home. Free state tax preparation sites the seller pays taxes for you (taxes owed beginning on the date of sale) you do not reimburse the seller are subtracted from the basis of your home. Free state tax preparation sites you reimburse the seller do not affect the basis of your home. Free state tax preparation sites Construction. Free state tax preparation sites   If you contracted to have your house built on land you own, your basis is: The cost of the land, plus The amount it cost you to complete the house, including: The cost of labor and materials, Any amounts paid to a contractor, Any architect's fees, Building permit charges, Utility meter and connection charges, and Legal fees directly connected with building the house. Free state tax preparation sites   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. Free state tax preparation sites It also includes certain settlement or closing costs. Free state tax preparation sites You may have to reduce your basis by points the seller paid for you. Free state tax preparation sites For more information, see Seller-paid points and Settlement fees or closing costs , earlier. Free state tax preparation sites Built by you. Free state tax preparation sites   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Free state tax preparation sites Do not include in the cost of the house: The value of your own labor, or The value of any other labor you did not pay for. Free state tax preparation sites Temporary housing. Free state tax preparation sites   If a builder gave you temporary housing while your home was being finished, you must reduce your basis by the part of the contract price that was for the temporary housing. Free state tax preparation sites To figure the amount of the reduction, multiply the contract price by a fraction. Free state tax preparation sites The numerator is the value of the temporary housing, and the denominator is the sum of the value of the temporary housing plus the value of the new home. Free state tax preparation sites Cooperative apartment. Free state tax preparation sites   If you are a tenant-stockholder in a cooperative housing corporation, your basis in the cooperative apartment used as your home is usually the cost of your stock in the corporation. Free state tax preparation sites This may include your share of a mortgage on the apartment building. Free state tax preparation sites Condominium. Free state tax preparation sites   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. Free state tax preparation sites Basis Other Than Cost You must use a basis other than cost, such as adjusted basis or fair market value, if you received your home as a gift, inheritance, a trade, or from your spouse. Free state tax preparation sites These situations are discussed in the following pages. Free state tax preparation sites Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. Free state tax preparation sites Other special rules may apply in certain situations. Free state tax preparation sites If you converted the property, or some part of it, to business or rental use, see Property Changed to Business or Rental Use, in Publication 551. Free state tax preparation sites Home received as gift. Free state tax preparation sites   Use the following chart to find the basis of a home you received as a gift. Free state tax preparation sites IF the donor's adjusted basis at the time of the gift was. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites THEN your basis is. Free state tax preparation sites . Free state tax preparation sites . Free state tax preparation sites more than the fair market value of the home at that time the same as the donor's adjusted basis at the time of the gift. Free state tax preparation sites   Exception: If using the donor's adjusted basis results in a loss when you sell the home, you must use the fair market value of the home at the time of the gift as your basis. Free state tax preparation sites If using the fair market value results in a gain, you have neither gain nor loss. Free state tax preparation sites equal to or less than the fair market value at that time, and you received the gift before 1977 the smaller of the: • donor's adjusted basis, plus  any federal gift tax paid on  the gift, or • the home's fair market value  at the time of the gift. Free state tax preparation sites equal to or less than the fair market value at that time, and you received the gift after 1976 the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home (explained next). Free state tax preparation sites Fair market value. Free state tax preparation sites   The fair market value of property at the time of the gift is the value of the property as appraised for purposes of the federal gift tax. Free state tax preparation sites If the gift was not subject to the federal gift tax, the fair market value is the value as appraised for the purposes of a state gift tax. Free state tax preparation sites Part of federal gift tax due to net increase in value. Free state tax preparation sites   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Free state tax preparation sites The numerator of the fraction is the net increase in the value of the home, and the denominator is the value of the home for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Free state tax preparation sites The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. Free state tax preparation sites Home acquired from a decedent who died before or after 2010. Free state tax preparation sites   If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent's death (or the later alternate valuation date chosen by the personal representative of the estate). Free state tax preparation sites If an estate tax return was filed or required to be filed, the value of the property listed on the estate tax return is your basis. Free state tax preparation sites If a federal estate tax return did not have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes. Free state tax preparation sites Surviving spouse. Free state tax preparation sites   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. Free state tax preparation sites The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). Free state tax preparation sites The basis in your interest will remain the same. Free state tax preparation sites Your new basis in the home is the total of these two amounts. Free state tax preparation sites   If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home. Free state tax preparation sites Example. Free state tax preparation sites Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. Free state tax preparation sites Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value). Free state tax preparation sites Community property. Free state tax preparation sites   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. Free state tax preparation sites When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. Free state tax preparation sites For this to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Free state tax preparation sites   For more information about community property, see Publication 555, Community Property. Free state tax preparation sites    If you are selling a home in which you acquired an interest from a decedent who died in 2010, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your basis. Free state tax preparation sites Home received as trade. Free state tax preparation sites   If you acquired your home as a trade for other property, in most cases, the basis of your home is the fair market value (at the time of the trade) of the property you gave up. Free state tax preparation sites If you traded one home for another, you have made a sale and purchase. Free state tax preparation sites In that case, you may have a gain. Free state tax preparation sites See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. Free state tax preparation sites Home received from spouse. Free state tax preparation sites   If you received your home from your spouse or from your former spouse incident to your divorce, your basis in the home depends on the date of the transfer. Free state tax preparation sites Transfers after July 18, 1984. Free state tax preparation sites   If you received the home after July 18, 1984, there was no gain or loss on the transfer. Free state tax preparation sites In most cases, your basis in this home is the same as your spouse's (or former spouse's) adjusted basis just before you received it. Free state tax preparation sites This rule applies even if you received the home in exchange for cash, the release of marital rights, the assumption of liabilities, or other considerations. Free state tax preparation sites   If you owned a home jointly with your spouse and your spouse transferred his or her interest in the home to you, in most cases, your basis in the half interest received from your spouse is the same as your spouse's adjusted basis just before the transfer. Free state tax preparation sites This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. Free state tax preparation sites Your basis in the half interest you already owned does not change. Free state tax preparation sites Your new basis in the home is the total of these two amounts. Free state tax preparation sites Transfers before July 19, 1984. Free state tax preparation sites   If you received your home before July 19, 1984, in exchange for your release of marital rights, in most cases, your basis in the home is generally its fair market value at the time you received it. Free state tax preparation sites More information. Free state tax preparation sites   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. Free state tax preparation sites Involuntary conversion. Free state tax preparation sites   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. Free state tax preparation sites If you acquired a replacement home with these proceeds, the basis is its cost decreased by any gain not recognized on the conversion under the rules explained in: Publication 547, in the case of a home that was destroyed, or Chapter 1 of Publication 544, in the case of a home that was condemned. Free state tax preparation sites Example. Free state tax preparation sites A fire destroyed your home that you owned and used for only 6 months. Free state tax preparation sites The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. Free state tax preparation sites Your gain is $50,000 ($130,000 − $80,000). Free state tax preparation sites You bought a replacement home for $100,000. Free state tax preparation sites The part of your gain that is taxable is $30,000 ($130,000 − $100,000), the unspent part of the payment from the insurance company. Free state tax preparation sites The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. Free state tax preparation sites The basis of the new home is figured as follows. Free state tax preparation sites Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. Free state tax preparation sites   For more information about basis, see Publication 551. Free state tax preparation sites Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Free state tax preparation sites To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. Free state tax preparation sites Filled-in examples of that worksheet are included in Comprehensive Examples , later. Free state tax preparation sites Recordkeeping. Free state tax preparation sites You should keep records to prove your home's adjusted basis. Free state tax preparation sites Ordinarily, you must keep records for 3 years after the due date for filing your return for the tax year in which you sold your home. Free state tax preparation sites But if you sold a home before May 7, 1997, and postponed tax on any gain, the basis of that home affects the basis of the new home you bought. Free state tax preparation sites Keep records proving the basis of both homes as long as they are needed for tax purposes. Free state tax preparation sites The records you should keep include: Proof of the home's purchase price and purchase expenses; Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis; Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain; Any Form 982 you filed to exclude any discharge of qualified principal residence indebtedness; Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997; and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. Free state tax preparation sites Increases to Basis These include the following. Free state tax preparation sites Additions and other improvements that have a useful life of more than 1 year. Free state tax preparation sites Special assessments for local improvements. Free state tax preparation sites Amounts you spent after a casualty to restore damaged property. Free state tax preparation sites Improvements. Free state tax preparation sites   These add to the value of your home, prolong its useful life, or adapt it to new uses. Free state tax preparation sites You add the cost of additions and other improvements to the basis of your property. Free state tax preparation sites   The following chart lists some other examples of improvements. Free state tax preparation sites Examples of Improvements That Increase Basis Additions Bedroom Bathroom Deck Garage Porch Patio Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Lawn & Grounds Landscaping Driveway Walkway Fence  Retaining wall Sprinkler system Swimming pool  Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system  Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances  Kitchen modernization  Flooring Wall-to-wall carpeting  Insulation Attic Walls Floors Pipes and duct work Improvements no longer part of home. Free state tax preparation sites   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Free state tax preparation sites Example. Free state tax preparation sites You put wall-to-wall carpeting in your home 15 years ago. Free state tax preparation sites Later, you replaced that carpeting with new wall-to-wall carpeting. Free state tax preparation sites The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Free state tax preparation sites Repairs. Free state tax preparation sites   These maintain your home in good condition but do not add to its value or prolong its life. Free state tax preparation sites You do not add their cost to the basis of your property. Free state tax preparation sites Examples. Free state tax preparation sites Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Free state tax preparation sites Exception. Free state tax preparation sites   The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. Free state tax preparation sites For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition. Free state tax preparation sites Decreases to Basis These include the following. Free state tax preparation sites Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). Free state tax preparation sites For details, see Publication 4681. Free state tax preparation sites Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Free state tax preparation sites For details, see Publication 4681. Free state tax preparation sites Gain you postponed from the sale of a previous home before May 7, 1997. Free state tax preparation sites Deductible casualty losses. Free state tax preparation sites Insurance payments you received or expect to receive for casualty losses. Free state tax preparation sites Payments you received for granting an easement or right-of-way. Free state tax preparation sites Depreciation allowed or allowable if you used your home for business or rental purposes. Free state tax preparation sites Energy-related credits allowed for expenditures made on the residence. Free state tax preparation sites (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Free state tax preparation sites ) Adoption credit you claimed for improvements added to the basis of your home. Free state tax preparation sites Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Free state tax preparation sites Energy conservation subsidy excluded from your gross income because you received it (directly or indirectly) from a public utility after 1992 to buy or install any energy conservation measure. Free state tax preparation sites An energy conservation measure is an installation or modification primarily designed either to reduce consumption of electricity or natural gas or to improve the management of energy demand for a home. Free state tax preparation sites District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. Free state tax preparation sites General sales taxes claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. Free state tax preparation sites Discharges of qualified principal residence indebtedness. Free state tax preparation sites   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Free state tax preparation sites This exclusion applies to discharges made after 2006 and before 2014. Free state tax preparation sites If you choose to exclude this income, you must reduce (but not below zero) the basis of your principal residence by the amount excluded from gross income. Free state tax preparation sites   File Form 982 with your tax return. Free state tax preparation sites See the form's instructions for detailed information. Free state tax preparation sites    A decrease in basis due to a discharge of qualified principal residence indebtedness that is excluded from income occurs only if you retain ownership of the principal residence after a discharge. Free state tax preparation sites In most cases, this would occur in a refinancing or a restructuring of the mortgage. Free state tax preparation sites Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Free state tax preparation sites This means that, if you qualify, you will not have to pay tax on the gain up to the limit described under Maximum Exclusion , next. Free state tax preparation sites To qualify, you must meet the ownership and use tests described later. Free state tax preparation sites You can choose not to take the exclusion by including the gain from the sale in your gross income on your tax return for the year of the sale. Free state tax preparation sites This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale. Free state tax preparation sites You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. Free state tax preparation sites If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Free state tax preparation sites See Publication 505, Tax Withholding and Estimated Tax. Free state tax preparation sites Maximum Exclusion You can exclude up to $250,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if all of the following are true. Free state tax preparation sites You meet the ownership test. Free state tax preparation sites You meet the use test. Free state tax preparation sites During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Free state tax preparation sites For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. Free state tax preparation sites If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed. Free state tax preparation sites You may be able to exclude up to $500,000 of the gain (other than gain allocated to periods of nonqualified use) on the sale of your main home if you are married and file a joint return and meet the requirements listed in the discussion of the special rules for joint returns, later, under Married Persons . Free state tax preparation sites Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Free state tax preparation sites This means that during the 5-year period ending on the date of the sale, you must have: Owned the home for at least 2 years (the ownership test), and Lived in the home as your main home for at least 2 years (the use test). Free state tax preparation sites Exception. Free state tax preparation sites   If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. Free state tax preparation sites However, the maximum amount you may be able to exclude will be reduced. Free state tax preparation sites See Reduced Maximum Exclusion , later. Free state tax preparation sites Example 1—home owned and occupied for at least 2 years. Free state tax preparation sites Mya bought and moved into her main home in September 2011. Free state tax preparation sites She sold the home at a gain in October 2013. Free state tax preparation sites During the 5-year period ending on the date of sale in October 2013, she owned and lived in the home for more than 2 years. Free state tax preparation sites She meets the ownership and use tests. Free state tax preparation sites Example 2—ownership test met but use test not met. Free state tax preparation sites Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Free state tax preparation sites He later sold the home for a gain in June 2013. Free state tax preparation sites He owned the home during the entire 5-year period ending on the date of sale. Free state tax preparation sites He meets the ownership test but not the use test. Free state tax preparation sites He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Free state tax preparation sites Period of Ownership and Use The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous nor do they both have to occur at the same time. Free state tax preparation sites You meet the tests if you can show that you owned and lived in the property as your main home for either 24 full months or 730 days (365 × 2) during the 5-year period ending on the date of sale. Free state tax preparation sites Example. Free state tax preparation sites Naomi bought and moved into a house in July 2009. Free state tax preparation sites She lived there for 13 months and then moved in with a friend. Free state tax preparation sites She later moved back into her house and lived there for 12 months until she sold it in August 2013. Free state tax preparation sites Naomi meets the ownership and use tests because, during the 5-year period ending on the date of sale, she owned the house for more than 2 years and lived in it for a total of 25 (13 + 12) months. Free state tax preparation sites Temporary absence. Free state tax preparation sites   Short temporary absences for vacations or other seasonal absences, even if you rent out the property during the absences, are counted as periods of use. Free state tax preparation sites The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Free state tax preparation sites Example 1. Free state tax preparation sites David Johnson, who is single, bought and moved into his home on February 1, 2011. Free state tax preparation sites Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Free state tax preparation sites David sold the house on March 1, 2013. Free state tax preparation sites Although the total time David lived in his home is less than 2 years (21 months), he meets the use requirement and may exclude gain. Free state tax preparation sites The 2-month vacations are short temporary absences and are counted as periods of use in determining whether David used the home for the required 2 years. Free state tax preparation sites Example 2. Free state tax preparation sites Professor Paul Beard, who is single, bought and moved into a house in December 2010, went abroad for a 1-year sabbatical leave in January 2012, returned to the house in January 2013, and sold it at a gain in February 2013. Free state tax preparation sites Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Free state tax preparation sites He cannot exclude any part of his gain because he did not use the residence for the required 2 years. Free state tax preparation sites Ownership and use tests met at different times. Free state tax preparation sites   You can meet the ownership and use tests during different 2-year periods. Free state tax preparation sites However, you must meet both tests during the 5-year period ending on the date of the sale. Free state tax preparation sites Example. Free state tax preparation sites Beginning in 2002, Helen Jones lived in a rented apartment. Free state tax preparation sites The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Free state tax preparation sites In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Free state tax preparation sites On July 12, 2013, while still living in her daughter's home, she sold her condominium. Free state tax preparation sites Helen can exclude gain on the sale of her condominium because she met the ownership and use tests during the 5-year period from July 13, 2008, to July 12, 2013, the date she sold the condominium. Free state tax preparation sites She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Free state tax preparation sites She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Free state tax preparation sites The time Helen lived in her daughter's home during the 5-year period can be counted toward her period of ownership, and the time she lived in her rented apartment during the 5-year period can be counted toward her period of use. Free state tax preparation sites Cooperative apartment. Free state tax preparation sites   If you sold stock as a tenant-shareholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitled you to occupy as your main home for at least 2 years. Free state tax preparation sites Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Free state tax preparation sites Exception for individuals with a disability. Free state tax preparation sites   There is an exception to the use test if: You become physically or mentally unable to care for yourself, and You owned and lived in your home as your main home for a total of at least 1 year during the 5-year period before the sale of your home. Free state tax preparation sites Under this exception, you are considered to live in your home during any time within the 5-year period that you own the home and live in a facility (including a nursing home) licensed by a state or political subdivision to care for persons in your condition. Free state tax preparation sites   If you meet this exception to the use test, you still have to meet the 2-out-of-5-year ownership test to claim the exclusion. Free state tax preparation sites Previous home destroyed or condemned. Free state tax preparation sites   For the ownership and use tests, you add the time you owned and lived in a previous home that was destroyed or condemned to the time you owned and lived in the replacement home on whose sale you wish to exclude gain. Free state tax preparation sites This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home (see Involuntary Conversions in Publication 551). Free state tax preparation sites Otherwise, you must have owned and lived in the same home for 2 of the 5 years before the sale to qualify for the exclusion. Free state tax preparation sites Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Free state tax preparation sites   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty (defined later) as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Free state tax preparation sites You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on qualified official extended duty (defined later) or as an enrolled volunteer or volunteer leader of the Peace Corps. Free state tax preparation sites This means that you may be able to meet the 2-year use test even if, because of your service, you did not actually live in your home for at least the required 2 years during the 5-year period ending on the date of sale. Free state tax preparation sites   If this helps you qualify to exclude gain, you can choose to have the 5-year test period suspended by filing a return for the year of sale that does not include the gain. Free state tax preparation sites Example. Free state tax preparation sites John bought and moved into a home in 2005. Free state tax preparation sites He lived in it as his main home for 2½ years. Free state tax preparation sites For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Free state tax preparation sites He then sold the home at a gain in 2013. Free state tax preparation sites To meet the use test, John chooses to suspend the 5-year test period for the 6 years he was on qualified official extended duty. Free state tax preparation sites This means he can disregard those 6 years. Free state tax preparation sites Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. Free state tax preparation sites He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Free state tax preparation sites Period of suspension. Free state tax preparation sites   The period of suspension cannot last more than 10 years. Free state tax preparation sites Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. Free state tax preparation sites You cannot suspend the 5-year period for more than one property at a time. Free state tax preparation sites You can revoke your choice to suspend the 5-year period at any time. Free state tax preparation sites Example. Free state tax preparation sites Mary bought a home on April 1, 1997. Free state tax preparation sites She used it as her main home until August 31, 2000. Free state tax preparation sites On September 1, 2000, she went on qualified official extended duty with the Navy. Free state tax preparation sites She did not live in the house again before selling it on July 31, 2013. Free state tax preparation sites Mary chooses to use the entire 10-year suspension period. Free state tax preparation sites Therefore, the suspension period would extend back from July 31, 2013, to August 1, 2003, and the 5-year test period would extend back to August 1, 1998. Free state tax preparation sites During that period, Mary owned the house all 5 years and lived in it as her main home from August 1, 1998, until August 31, 2000, a period of more than 24 months. Free state tax preparation sites She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. Free state tax preparation sites Uniformed services. Free state tax preparation sites   The uniformed services are: The Armed Forces (the Army, Navy, Air Force, Marine Corps, and Coast Guard), The commissioned corps of the National Oceanic and Atmospheric Administration, and The commissioned corps of the Public Health Service. Free state tax preparation sites Foreign Service member. Free state tax preparation sites   For purposes of the choice to suspend the 5-year test period for ownership and use, you are a member of the Foreign Service if you are any of the following. Free state tax preparation sites A Chief of mission. Free state tax preparation sites An Ambassador at large. Free state tax preparation sites A member of the Senior Foreign Service. Free state tax preparation sites A Foreign Service officer. Free state tax preparation sites Part of the Foreign Service personnel. Free state tax preparation sites Employee of the intelligence community. Free state tax preparation sites   For purposes of the choice to suspend the 5-year test period for ownership and use, you are an employee of the intelligence community if you are an employee of any of the following. Free state tax preparation sites The Office of the Director of National Intelligence. Free state tax preparation sites The Central Intelligence Agency. Free state tax preparation sites The National Security Agency. Free state tax preparation sites The Defense Intelligence Agency. Free state tax preparation sites The National Geospatial-Intelligence Agency. Free state tax preparation sites The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. Free state tax preparation sites Any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard. Free state tax preparation sites The Bureau of Intelligence and Research of the Department of State. Free state tax preparation sites Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. Free state tax preparation sites Qualified official extended duty. Free state tax preparation sites   You are on qualified official extended duty if you are on extended duty while: Serving at a duty station at least 50 miles from your main home, or Living in Government quarters under Government orders. Free state tax preparation sites   You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. Free state tax preparation sites Married Persons If you and your spouse file a joint return for the year of sale and one spouse meets the ownership and use tests, you can exclude up to $250,000 of the gain. Free state tax preparation sites (But see Special rules for joint returns, next. Free state tax preparation sites ) Special rules for joint returns. Free state tax preparation sites   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Free state tax preparation sites You are married and file a joint return for the year. Free state tax preparation sites Either you or your spouse meets the ownership test. Free state tax preparation sites Both you and your spouse meet the use test. Free state tax preparation sites During the 2-year period ending on the date of the sale, neither you nor your spouse excluded gain from the sale of another home. Free state tax preparation sites If either spouse does not satisfy all these requirements, the maximum exclusion that can be claimed by the couple is the total of the maximum exclusions that each spouse would qualify for if not married and the amounts were figured separately. Free state tax preparation sites For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Free state tax preparation sites Example 1—one spouse sells a home. Free state tax preparation sites Emily sells her home in June 2013 for a gain of $300,000. Free state tax preparation sites She marries Jamie later in the year. Free state tax preparation sites She meets the ownership and use tests, but Jamie does not. Free state tax preparation sites Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Free state tax preparation sites The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Free state tax preparation sites Example 2—each spouse sells a home. Free state tax preparation sites The facts are the same as in Example 1 except that Jamie also sells a home in 2013 for a gain of $200,000 before he marries Emily. Free state tax preparation sites He meets the ownership and use tests on his home, but Emily does not. Free state tax preparation sites Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Free state tax preparation sites However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Free state tax preparation sites Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Free state tax preparation sites The $500,000 maximum exclusion for certain joint returns does not apply because Emily and Jamie do not both meet the use test for the same home. Free state tax preparation sites Sale of main home by surviving spouse. Free state tax preparation sites   If your spouse died and you did not remarry before the date of sale, you are considered to have owned and lived in the property as your main home during any period of time when your spouse owned and lived in it as a main home. Free state tax preparation sites   If you meet all of the following requirements, you may qualify to exclude up to $500,000 of any gain from the sale or exchange of your main home. Free state tax preparation sites The sale or exchange took place after 2008. Free state tax preparation sites The sale or exchange took place no more than 2 years after the date of death of your spouse. Free state tax preparation sites You have not remarried. Free state tax preparation sites You and your spouse met the use test at the time of your spouse's death. Free state tax preparation sites You or your spouse met the ownership test at the time of your spouse's death. Free state tax preparation sites Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. Free state tax preparation sites The ownership and use tests were described earlier. Free state tax preparation sites Example. Free state tax preparation sites Harry owned and used a house as his main home since 2009. Free state tax preparation sites Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. Free state tax preparation sites Harry died on August 15, 2013, and Wilma inherited the property. Free state tax preparation sites Wilma sold the property on September 1, 2013, at which time she had not remarried. Free state tax preparation sites Although Wilma owned and used the house for less than 2 years, Wilma is considered to have satisfied the ownership and use tests because her period of ownership and use includes the period that Harry owned and used the property before death. Free state tax preparation sites Home transferred from spouse. Free state tax preparation sites   If your home was transferred to you by your spouse (or former spouse if the transfer was incident to divorce), you are considered to have owned it during any period of time when your spouse owned it. Free state tax preparation sites Use of home after divorce. Free state tax preparation sites   You are considered to have used property as your main home during any period when: You owned it, and Your spouse or former spouse is allowed to live in it under a divorce or separation instrument and uses it as his or her main home. Free state tax preparation sites Reduced Maximum Exclusion If you fail to meet the requirements to qualify for the $250,000 or $500,000 exclusion, you may still qualify for a reduced exclusion. Free state tax preparation sites This applies to those who: Fail to meet the ownership and use tests, or Have used the exclusion within 2 years of selling their current home. Free state tax preparation sites In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Free state tax preparation sites A change in place of employment. Free state tax preparation sites Health. Free state tax preparation sites Unforeseen circumstances. Free state tax preparation sites Qualified individual. Free state tax preparation sites   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. Free state tax preparation sites You. Free state tax preparation sites Your spouse. Free state tax preparation sites A co-owner of the home. Free state tax preparation sites A person whose main home is the same as yours. Free state tax preparation sites Primary reason for sale. Free state tax preparation sites   One of the three reasons above will be considered to be the primary reason you sold your home if either (1) or (2) is true. Free state tax preparation sites You qualify under a “safe harbor. Free state tax preparation sites ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. Free state tax preparation sites Safe harbors corresponding to the reasons listed above are described later. Free state tax preparation sites A safe harbor does not apply, but you can establish, based on facts and circumstances, that the primary reason for the sale is a change in place of employment, health, or unforeseen circumstances. Free state tax preparation sites  Factors that may be relevant in determining your primary reason for sale include whether: Your sale and the circumstances causing it were close in time, The circumstances causing your sale occurred during the time you owned and used the property as your main home, The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home, Your financial ability to maintain the property became materially impaired, The suitability of the property as your main home materially changed, and During the time you owned the property, you used it as your home. Free state tax preparation sites Change in Place of Employment You may qualify for a reduced exclusion if the primary reason for the sale of your main home is a change in the location of employment of a qualified individual. Free state tax preparation sites Employment. Free state tax preparation sites   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. Free state tax preparation sites It also includes the start or continuation of self-employment. Free state tax preparation sites Distance safe harbor. Free state tax preparation sites   A change in place of employment is considered to be the reason you sold your home if: The change occurred during the period you owned and used the property as your main home, and The new place of employment is at least 50 miles farther from the home you sold than was the former place of employment (or, if there was no former place of employment, the distance between your new place of employment and the home sold is at least 50 miles). Free state tax preparation sites Example. Free state tax preparation sites Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. Free state tax preparation sites He got a job in North Carolina and sold his townhouse in 2013. Free state tax preparation sites Because the distance between Justin's new place of employment and the home he sold is at least 50 miles, the sale satisfies the conditions of the distance safe harbor. Free state tax preparation sites Justin's sale of his home is considered to be because of a change in place of employment, and he is entitled to claim a reduced maximum exclusion of gain from the sale. Free state tax preparation sites Health The sale of your main home is because of health if your primary reason for the sale is: To obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual, or To obtain or provide medical or personal care for a qualified individual suffering from a disease, illness, or injury. Free state tax preparation sites The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. Free state tax preparation sites For purposes of this reason, a qualified individual includes, in addition to the individuals listed earlier under Qualified individual , any of the following family members of these individuals. Free state tax preparation sites Parent, grandparent, stepmother, stepfather. Free state tax preparation sites Child, grandchild, stepchild, adopted child, eligible foster child. Free state tax preparation sites Brother, sister, stepbrother, stepsister, half-brother, half-sister. Free state tax preparation sites Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Free state tax preparation sites Uncle, aunt, nephew, niece, or cousin. Free state tax preparation sites Example. Free state tax preparation sites In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. Free state tax preparation sites Lauren's father has a chronic disease and is unable to care for himself. Free state tax preparation sites In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. Free state tax preparation sites Because the primary reason for the sale of their home was to provide care for Lauren's father, Chase and Lauren are entitled to a reduced maximum exclusion. Free state tax preparation sites Doctor's recommendation safe harbor. Free state tax preparation sites   Health is considered to be the reason you sold your home if, for one or more of the reasons listed at the beginning of this discussion, a doctor recommends a change of residence. Free state tax preparation sites Unforeseen Circumstances The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying that home. Free state tax preparation sites You are not considered to have an unforeseen circumstance if the primary reason you sold your home was that you preferred to get a different home or because your finances improved. Free state tax preparation sites Specific event safe harbors. Free state tax preparation sites   Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home. Free state tax preparation sites An involuntary conversion of your home, such as when your home is destroyed or condemned. Free state tax preparation sites Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible. Free state tax preparation sites In the case of qualified individuals (listed earlier under Qualified individual ): Death, Unemployment (if the individual is eligible for unemployment compensation), A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses , later) for his or her household, Divorce or legal separation under a decree of divorce or separate maintenance, or Multiple births resulting from the same pregnancy. Free state tax preparation sites An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. Free state tax preparation sites For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. Free state tax preparation sites Reasonable basic living expenses. Free state tax preparation sites   Reasonable basic living expenses for your household include the following. Free state tax preparation sites Amounts spent for food. Free state tax preparation sites Amounts spent for clothing. Free state tax preparation sites Housing and related expenses. Free state tax preparation sites Medical expenses. Free state tax preparation sites Transportation expenses. Free state tax preparation sites Tax payments. Free state tax preparation sites Court-ordered payments. Free state tax preparation sites Expenses reasonably necessary to produce income. Free state tax preparation sites   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. Free state tax preparation sites Nonqualified Use Gain from the sale or exchange of the main home is not excludable from income if it is allocable to periods of nonqualified use. Free state tax preparation sites Nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions (see next). Free state tax preparation sites Exceptions. Free state tax preparation sites   A period of nonqualified use does not include: Any portion of the 5-year period ending on the date of the sale or exchange after the last date you (or your spouse) use the property as a main home; Any period (not to exceed an aggregate period of 10 years) during which you (or your spouse) are serving on qualified official extended duty: As a member of the uniformed services; As a member of the Foreign Service of the United States; or As an employee of the intelligence community; and Any other period of temporary absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen circumstances as may be specified by the IRS. Free state tax preparation sites Calculation. Free state tax preparation sites   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain (net of any depreciation allowed or allowable on the property for periods after May 6, 1997) by the following fraction:   Total nonqualified use during the period of ownership after 2008     Total period of ownership     This calculation can be found in Worksheet 2, line 10, later in this publication. Free state tax preparation sites   For examples of this calculation, see Business Use or Rental of Home , next. Free state tax preparation sites Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income if you meet the ownership and use tests. Free state tax preparation sites Example 1. Free state tax preparation sites On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Free state tax preparation sites She moved in on that date and lived in it until May 31, 2009, when she moved out of the house and put it up for rent. Free state tax preparation sites The house was rented from June 1, 2009, to March 31, 2011. Free state tax preparation sites Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Free state tax preparation sites Amy moved back into the house on April 1, 2011, and lived there until she sold it on January 31, 2013, for a gain of $200,000. Free state tax preparation sites During the 5-year period ending on the date of the sale (January 31, 2008–January 31, 2013), Amy owned and lived in the house for more than 2 years as shown in the following table. Free state tax preparation sites Five-Year Period Used as Home Used as Rental 1/31/08 – 5/31/09 16 months   6/01/09 – 3/31/11   22 months 4/01/11 – 1/31/13 22 months     38 months 22 months       During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. Free state tax preparation sites Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain, as shown on Worksheet 2. Free state tax preparation sites Example 2. Free state tax preparation sites William owned and used a house as his main home from 2007 through 2010. Free state tax preparation sites On January 1, 2011, he moved to another state. Free state tax preparation sites He rented his house from that date until April 30, 2013, when he sold it. Free state tax preparation sites During the 5-year period ending on the date of sale (May 1, 2008-April 30, 2013), William owned and lived in the house for more than 2 years. Free state tax preparation sites Because it was rental property at the time of the sale, he must report the sale on Form 4797. Free state tax preparation sites Because the period of nonqualified use does not include any part of the 5-year period after the last date William lived in the house, he has no period of nonqualified use. Free state tax preparation sites Because he met the ownership and use tests, he can exclude gain up to $250,000. Free state tax preparation sites However, he cannot exclude the part of the gain equal to the depreciation he claimed or could have claimed for renting the house, as explained next. Free state tax preparation sites Depreciation after May 6, 1997. Free state tax preparation sites   If you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. Free state tax preparation sites If you can show by adequate records or other evidence that the depreciation allowed was less than the amount allowable, then you may limit the amount of gain recognized to the depreciation allowed. Free state tax preparation sites Unrecaptured section 1250 gain. Free state tax preparation sites   This is the part of any long-term capital gain from the sale of your home that is due to depreciation and cannot be excluded. Free state tax preparation sites To figure the amount of unrecaptured section 1250 gain to be reported on Schedule D (Form 1040), you must also take into account certain gains or losses from the sale of property other than your home. Free state tax preparation sites Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. Free state tax preparation sites Worksheet 2. Free state tax preparation sites Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. Free state tax preparation sites Gain or (Loss) on Sale       1. Free state tax preparation sites   Selling price of home 1. Free state tax preparation sites     2. Free state tax preparation sites   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. Free state tax preparation sites     3. Free state tax preparation sites   Subtract line 2 from line 1. Free state tax preparation sites This is the amount realized 3. Free state tax preparation sites     4. Free state tax preparation sites   Adjusted basis of home sold (from Worksheet 1, line 13) 4. Free state tax preparation sites     5. Free state tax preparation sites   Gain or (loss) on the sale. Free state tax preparation sites Subtract line 4 from line 3. Free state tax preparation sites If this is a loss, stop here 5. Free state tax preparation sites 200,000   Part 2. Free state tax preparation sites Exclusion and Taxable Gain       6. Free state tax preparation sites   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. Free state tax preparation sites If none, enter -0- 6. Free state tax preparation sites 10,000   7. Free state tax preparation sites   Subtract line 6 from line 5. Free state tax preparation sites If the result is less than zero, enter -0- 7. Free state tax preparation sites 190,000   8. Free state tax preparation sites   Aggregate number of days of nonqualified use after 2008. Free state tax preparation sites If none, enter -0-. Free state tax preparation sites  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. Free state tax preparation sites 668   9. Free state tax preparation sites   Number of days taxpayer owned the property 9. Free state tax preparation sites 2,080   10. Free state tax preparation sites   Divide the amount on line 8 by the amount on line 9. Free state tax preparation sites Enter the result as a decimal (rounded to at least 3 places). Free state tax preparation sites But do not enter an amount greater than 1. Free state tax preparation sites 00 10. Free state tax preparation sites 0. Free state tax preparation sites 321   11. Free state tax preparation sites   Gain allocated to nonqualified use. Free state tax preparation sites (Line 7 multiplied by line 10) 11. Free state tax preparation sites 60,990   12. Free state tax preparation sites   Gain eligible for exclusion. Free state tax preparation sites Subtract line 11 from line 7 12. Free state tax preparation sites 129,010   13. Free state tax preparation sites   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). Free state tax preparation sites  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. Free state tax preparation sites If you do  not qualify to exclude gain, enter -0- 13. Free state tax preparation sites 250,000   14. Free state tax preparation sites   Exclusion. Free state tax preparation sites Enter the smaller of line 12 or line 13 14. Free state tax preparation sites 129,010   15. Free state tax preparation sites   Taxable gain. Free state tax preparation sites Subtract line 14 from line 5. Free state tax preparation sites Report your taxable gain as described under Reporting the Sale . Free state tax preparation sites If the amount on line 6 is more than zero, complete line 16 15. Free state tax preparation sites 70,990   16. Free state tax preparation sites   Enter the smaller of line 6 or line 15. Free state tax preparation sites Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. Free state tax preparation sites 10,000 Property Used Partly for Business or Rental If you use property partly as a home and partly for business or to produce rental income, the treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Free state tax preparation sites Part of Home Used for Business or Rental If the part of your property used for business or to produce rental income is within your home, such as a room used as a home office for a business, you do not need to allocate gain on the sale of the property between the business part of the property and the part used as a home. Free state tax preparation sites In addition, you do not need to report the sale of the business or rental part on Form 4797. Free state tax preparation sites This is true whether or not you were entitled to claim any depreciation. Free state tax preparation sites However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. Free state tax preparation sites See Depreciation after May 6, 1997, earlier. Free state tax preparation sites Example 1. Free state tax preparation sites Ray sold his main home in 2013 at a $30,000 gain. Free state tax preparation sites He has no gains or losses from the sale of property other than the gain from the sale of his home. Free state tax preparation sites He meets the ownership and use tests to exclude the gain from his income. Free state tax preparation sites However, he used part of the home as a business office in 2012 and claimed $500 depreciation. Free state tax preparation sites Because the business office was part of his home (not separate from it), he does not have to allocate the gain on the sale between the business part of the property and the part used as a home. Free state tax preparation sites In addition, he does not have to report any part of the gain on Form 4797. Free state tax preparation sites Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. Free state tax preparation sites He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). Free state tax preparation sites Example 2. Free state tax preparation sites The facts are the same as in Example 1 except that Ray was not entitled to claim depreciation for the business use of his home. Free state tax preparation sites Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. Free state tax preparation sites Separate Part of Property Used for Business or Rental You may have used part of your property as your home and a separate part of it for business or to produce rental income. Free state tax preparation sites Examples are: A working farm on which your house was located, A duplex in w