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Free State Tax Return Filing

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Free State Tax Return Filing

Free state tax return filing Publication 4492-A - Main Contents Table of Contents DefinitionsKansas Disaster Area Storms and Tornadoes Casualty and Theft Losses Replacement Period for Nonrecognition of Gain Net Operating Losses IRAs and Other Retirement PlansDefinitions Taxation of Qualified Recovery Assistance Distributions Repayment of Qualified Recovery Assistance Distributions How To Report Qualified Recovery Assistance Distributions Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Loans From Qualified Plans Additional Tax Relief for BusinessesSpecial Depreciation Allowance Increased Section 179 Deduction Employee Retention Credit Demolition and Clean-up Costs Request for Copy or Transcript of Tax Return How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). Free state tax return filing Definitions The following definitions are used throughout this publication. Free state tax return filing Kansas Disaster Area The Kansas disaster area covers the Kansas counties of Barton, Clay, Cloud, Comanche, Dickinson, Edwards, Ellsworth, Kiowa, Leavenworth, Lyon, McPherson, Osage, Osborne, Ottawa, Phillips, Pottawatomie, Pratt, Reno, Rice, Riley, Saline, Shawnee, Smith, and Stafford. Free state tax return filing Storms and Tornadoes The term “storms and tornadoes” as used in this publication, refers to the storms and tornadoes that began on May 4, 2007, and affected the Kansas disaster area (defined above). Free state tax return filing Casualty and Theft Losses The following paragraphs explain changes to casualty and theft losses that occurred in the Kansas disaster area. Free state tax return filing Limits on personal casualty or theft losses in the Kansas disaster area. Free state tax return filing   Losses of personal use property that arose in the Kansas disaster area after May 3, 2007, are not subject to the $100 or 10% of adjusted gross income limits. Free state tax return filing Qualifying losses include losses from casualties and thefts that arose in the disaster area and that were attributable to the storms and tornadoes. Free state tax return filing When to deduct the loss. Free state tax return filing   Casualty and theft losses are generally deductible only in the year the casualty occurred or the theft was discovered. Free state tax return filing However, the Kansas disaster area is a Presidentially declared disaster. Free state tax return filing Therefore, you could have elected to deduct losses from these storms and tornadoes on your tax return for the previous year. Free state tax return filing The deadline for making this election has expired. Free state tax return filing   The following special instructions explain how to complete your forms if you deduct the loss in 2007 or elected to deduct the loss in 2006. Free state tax return filing Special instructions for individuals who file Form 4684 to claim a Kansas disaster area casualty or theft loss for 2007 or are amending their 2006 return. Free state tax return filing   Individuals filing or amending their 2007 tax return or amending their 2006 tax return for casualty or theft losses that were attributable to the storms and tornadoes should enter “Kansas Disaster Area” at the top of Form 1040 or 1040X. Free state tax return filing They must also complete and attach the 2006 version of Form 4684 for either year and enter “Kansas Disaster Area” on the top and on the dotted line next to line 11 and enter -0- on line 11. Free state tax return filing Individuals filing or amending their 2007 tax return should cross out “2006” and enter “2007” at the top of Form 4684. Free state tax return filing They must also enter the amount from line 21 of that form on line 20 of Schedule A (Form 1040). Free state tax return filing Replacement Period for Nonrecognition of Gain Generally, an involuntary conversion occurs when property is damaged, destroyed, stolen, seized, requisitioned, or condemned, and you receive other property or money in payment, such as insurance or a condemnation award. Free state tax return filing Generally, you do not have to report a gain (if any) if you replace the property within 2 years (4 years for a main home in a Presidentially declared disaster area). Free state tax return filing However, for property that was involuntarily converted after May 3, 2007, as a result of the storms and tornadoes, a 5-year replacement period applies if substantially all of the use of the replacement property is in the Kansas disaster area. Free state tax return filing For more information, see the Instructions for Form 4684. Free state tax return filing Net Operating Losses Qualified recovery assistance loss. Free state tax return filing   Generally, you can carry a net operating loss (NOL) back to the 2 tax years before the NOL year. Free state tax return filing However, the portion of an NOL that is a qualified recovery assistance loss can be carried back to the 5 tax years before the NOL year. Free state tax return filing In addition, the 90% limit on the alternative tax NOL deduction (ATNOLD) does not apply to such portion of the ATNOLD. Free state tax return filing   A qualified recovery assistance loss is the smaller of: The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year): Qualified recovery assistance casualty loss (as defined below), Moving expenses paid or incurred after May 3, 2007, and before January 1, 2010, for the employment of an individual whose main home was in the Kansas disaster area before May 4, 2007, who was unable to remain in that home because of the storms and tornadoes, and whose main job location (after the move) is in the Kansas disaster area, Temporary housing expenses paid or incurred after May 3, 2007, and before January 1, 2010, to house employees of the taxpayer whose main job location is in the Kansas disaster area, Depreciation or amortization allowable for any qualified recovery assistance property (even if you elected not to claim the special recovery assistance depreciation allowance for such property) for the year placed in service, and Repair expenses (including expenses for the removal of debris) paid or incurred after May 3, 2007, and before January 1, 2010, for any damage from the storms and tornadoes to property located in the Kansas disaster area. Free state tax return filing Qualified recovery assistance casualty loss. Free state tax return filing   A qualified recovery assistance casualty loss is any deductible section 1231 loss of property located in the Kansas disaster area if the loss was caused by the storms and tornadoes. Free state tax return filing For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by the storms and tornadoes of property located in the Kansas disaster area. Free state tax return filing Any such loss taken into account in figuring your qualified recovery assistance loss is not eligible for the election to be treated as having occurred in the previous tax year. Free state tax return filing Amended return. Free state tax return filing   If you have already filed your 2007 tax return and then carried your NOL back 2 years, you may file an amended return to carry back for 5 years your NOL attributable to a qualified recovery assistance loss. Free state tax return filing More information. Free state tax return filing    For more information on NOLs, see Publication 536. Free state tax return filing IRAs and Other Retirement Plans New rules provide for tax-favored withdrawals, repayments, and loans from certain retirement plans for individuals who suffered economic losses as a result of the storms and tornadoes. Free state tax return filing Definitions Qualified recovery assistance distribution. Free state tax return filing   Except as provided below, a qualified recovery assistance distribution is any distribution you received and designated as such from an eligible retirement plan if all of the following apply. Free state tax return filing The distribution was made after May 3, 2007, and before January 1, 2009. Free state tax return filing Your main home was located in the Kansas disaster area on May 4, 2007. Free state tax return filing You sustained an economic loss because of the storms and tornadoes. Free state tax return filing Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Free state tax return filing   If (1) through (3) above apply, you can generally designate any distribution (including periodic payments and required minimum distributions) from an eligible retirement plan as a qualified recovery assistance distribution, regardless of whether the distribution was made on account of the storms and tornadoes. Free state tax return filing Qualified recovery assistance distributions are permitted without regard to your need or the actual amount of your economic loss. Free state tax return filing   The total of your qualified recovery assistance distributions from all plans is limited to $100,000. Free state tax return filing If you have distributions in excess of $100,000 from more than one type of plan, such as a 401(k) plan and an IRA, you may allocate the $100,000 limit among the plans any way you choose. Free state tax return filing   A reduction or offset after May 3, 2007, of your account balance in an eligible retirement plan in order to repay a loan can also be designated as a qualified recovery assistance distribution. Free state tax return filing Eligible retirement plan. Free state tax return filing   An eligible retirement plan can be any of the following. Free state tax return filing A qualified pension, profit-sharing, or stock bonus plan (including a 401(k) plan). Free state tax return filing A qualified annuity plan. Free state tax return filing A tax-sheltered annuity contract. Free state tax return filing A governmental section 457 deferred compensation plan. Free state tax return filing A traditional, SEP, SIMPLE, or Roth IRA. Free state tax return filing Main home. Free state tax return filing   Generally, your main home is the home where you live most of the time. Free state tax return filing A temporary absence due to special circumstances, such as illness, education, business, military service, evacuation, or vacation, will not change your main home. Free state tax return filing Taxation of Qualified Recovery Assistance Distributions Qualified recovery assistance distributions are included in income in equal amounts over three years. Free state tax return filing However, if you elect, you can include the entire distribution in your income in the year it was received. Free state tax return filing Qualified recovery assistance distributions are not subject to the additional 10% tax (or the additional 25% tax for certain distributions from SIMPLE IRAs) on early distributions from qualified retirement plans (including IRAs). Free state tax return filing However, any distributions you receive in excess of the $100,000 qualified recovery assistance distribution limit may be subject to the additional tax on early distributions. Free state tax return filing For more information, see How To Report Qualified Recovery Assistance Distributions on page 4. Free state tax return filing Repayment of Qualified Recovery Assistance Distributions If you choose, you generally can repay any portion of a qualified recovery assistance distribution that is eligible for tax-free rollover treatment to an eligible retirement plan. Free state tax return filing Also, you can repay a qualified recovery assistance distribution made on account of a hardship from a retirement plan. Free state tax return filing However, see Exceptions below for qualified recovery assistance distributions you cannot repay. Free state tax return filing You have three years from the day after the date you received the distribution to make a repayment. Free state tax return filing Amounts that are repaid are treated as a qualified rollover and are not included in income. Free state tax return filing Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Free state tax return filing See Form 8915 for more information on how to report repayments. Free state tax return filing Exceptions. Free state tax return filing   You cannot repay the following types of distributions. Free state tax return filing Qualified recovery assistance distributions received as a beneficiary (other than a surviving spouse). Free state tax return filing Required minimum distributions. Free state tax return filing Periodic payments (other than from an IRA) that are for: A period of 10 years or more, Your life or life expectancy, or The joint lives or joint life expectancies of you and your beneficiary. Free state tax return filing How To Report Qualified Recovery Assistance Distributions You will need the following information to correctly report any 2007 or 2008 qualified recovery assistance distributions. Free state tax return filing 2007 Qualified Recovery Assistance Distributions If you received a distribution after May 3, 2007, from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Free state tax return filing See Qualified recovery assistance distribution on page 3. Free state tax return filing If you have not filed your 2007 income tax return, see Form 8915 and Form 8606 on this page to see how to complete these forms for any qualified recovery assistance distributions. Free state tax return filing Be sure to attach Form 8915 and Form 8606 (if required) to your 2007 income tax return. Free state tax return filing If you have filed your 2007 income tax return, you will need to amend your return to designate any distributions as qualified recovery assistance distributions. Free state tax return filing You can amend your 2007 income tax return by using Form 1040X. Free state tax return filing You will need to complete and attach Form 8915 and Form 8606 (if required) to your amended income tax return for any qualified recovery assistance distributions. Free state tax return filing See Form 8915 and Form 8606 on this page. Free state tax return filing Form 8915. Free state tax return filing   For a 2007 qualified recovery assistance distribution, complete the 2005 Form 8915, Qualified Hurricane Retirement Plan Distributions and Repayments. Free state tax return filing Before you complete the form, modify the form as follows. Free state tax return filing Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Free state tax return filing ” To the right of the title, cross out “2005” and enter “2007. Free state tax return filing ” In Part I, at the top of column (a), cross out “2005” and enter “2007. Free state tax return filing ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. Free state tax return filing ” On lines 10 and 11, cross out “2005” and enter “2007. Free state tax return filing ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. Free state tax return filing ” On line 12, cross out “hurricane” and enter “recovery assistance. Free state tax return filing ” On lines 13 and 14, cross out “line 15b” and “line 25b. Free state tax return filing ” On lines 18 and 19, cross out “2005” and enter “2007. Free state tax return filing ”   You can now complete Form 8915. Free state tax return filing For the instructions, use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions. Free state tax return filing See Example 1 on page 5 to see how to complete Form 8915. Free state tax return filing Form 8606. Free state tax return filing   For a 2007 qualified recovery assistance distribution, complete or amend the 2007 Form 8606, Nondeductible IRAs. Free state tax return filing Before you complete or amend the form, use the following additional instructions. Free state tax return filing Form 8606, Part I. Free state tax return filing    On line 6, subtract any repayments of qualified recovery assistance distributions from the amount you would otherwise enter on line 6. Free state tax return filing Do not enter an amount less than -0-. Free state tax return filing Include on line 7 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. Free state tax return filing Complete line 15 as follows. Free state tax return filing If all of your distributions are qualified recovery assistance distributions, enter the amount from line 15 on Form 8915, line 13. Free state tax return filing Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Free state tax return filing If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 15 by a fraction. Free state tax return filing The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 7. Free state tax return filing Enter the result in the white space in the bottom margin of the form under line 15. Free state tax return filing To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 13. Free state tax return filing Then, subtract this amount from the amount on line 15 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Free state tax return filing Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. Free state tax return filing To the left of this amount, enter “Other distributions. Free state tax return filing ” Form 8606, Part III. Free state tax return filing    Include on line 19 the amount of any qualified recovery assistance distributions that you received even if they were later repaid. Free state tax return filing Complete line 25 as follows. Free state tax return filing If all of your distributions are qualified recovery assistance distributions, enter the amount from line 25 on Form 8915, line 14. Free state tax return filing Do not enter this amount on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Free state tax return filing If you have qualified recovery assistance distributions as well as other distributions, you will need to multiply the amount on line 25 by a fraction. Free state tax return filing The numerator of the fraction is your total qualified recovery assistance distributions and the denominator is the amount from Form 8606, line 21. Free state tax return filing Enter the result in the white space in the bottom margin of the form under line 25. Free state tax return filing To the left of this amount, enter “Qualified recovery assistance distributions” and also enter this amount on Form 8915, line 14. Free state tax return filing Then, subtract this amount from the amount on line 25 and include the result on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. Free state tax return filing Also, enter this amount on Form 8606 under your qualified recovery assistance distributions. Free state tax return filing To the left of this amount, enter “Other distributions. Free state tax return filing ” Example 1. Free state tax return filing   On May 4, 2007, Margaret Maple lost her home due to the tornadoes on that day. Free state tax return filing Her home was located in the Kansas disaster area. Free state tax return filing On July 31, 2007, Margaret took out $30,000 from her 401(k) plan and an additional $15,000 from her traditional IRA in order to rebuild her home. Free state tax return filing Margaret has not filed her 2007 return yet but would like to designate the $45,000 in distributions from her retirement plans as qualified recovery assistance distributions. Free state tax return filing Since the distributions occurred in 2007, Margaret would modify and complete the 2005 Form 8915 as discussed on page 4. Free state tax return filing Margaret would also need to complete Form 8606 since her distribution from her traditional IRA has nondeductible contributions from previous years. Free state tax return filing   In addition to the $15,000 qualified recovery assistance distribution on July 31, 2007, Margaret received an additional distribution of $15,000 from her traditional IRA on October 31, 2007, that she did not designate as a qualified recovery assistance distribution. Free state tax return filing Because Margaret has a qualified recovery assistance distribution as well as a distribution not so designated, Margaret must allocate the amount on Form 8606, line 15 to both distributions, as discussed earlier. Free state tax return filing Margaret's qualified recovery assistance distributions are $13,125 ($26,250 × $15,000 ÷ $30,000). Free state tax return filing Margaret enters in the white space in the bottom margin of Form 8606, the following, “Qualified recovery assistance distributions $13,125. Free state tax return filing ” This amount is then reported on Form 8915, line 13. Free state tax return filing Below this entry, Margaret enters “Other distributions $13,125,” and includes this amount on Form 1040, line 15b. Free state tax return filing See Margaret's modified 2005 Form 8915 and 2007 Form 8606 shown on pages 6 through 8. Free state tax return filing This image is too large to be displayed in the current screen. Free state tax return filing Please click the link to view the image. Free state tax return filing 2005 Form 8915, page 1, Illustrated Example 1. Free state tax return filing This image is too large to be displayed in the current screen. Free state tax return filing Please click the link to view the image. Free state tax return filing 2005 Form 8915, page 2, Illustrated Example 1 This image is too large to be displayed in the current screen. Free state tax return filing Please click the link to view the image. Free state tax return filing Form 8606, page 1, Illustrated Example 1 2008 Qualified Recovery Assistance Distributions If you received a distribution in 2008 from an eligible retirement plan, you may be able to designate it as a qualified recovery assistance distribution. Free state tax return filing See Qualified recovery assistance distribution on page 3. Free state tax return filing You will need to complete and attach Form 8915 and Form 8606 (if required) to your 2008 income tax return for any qualified recovery assistance distributions. Free state tax return filing See Form 8915 and Form 8606 below. Free state tax return filing Form 8915. Free state tax return filing   For a 2008 qualified recovery assistance distribution, you will need to complete the 2006 Form 8915. Free state tax return filing Before you complete the form, modify the form as follows. Free state tax return filing Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Free state tax return filing ” To the right of the title, cross out “2006” and enter “2008. Free state tax return filing ” In the first sentence of Part I and on line 1, cross out “hurricane” and enter “recovery assistance,” cross out “2006” and enter “2008,” and cross out “2005” and enter “2007. Free state tax return filing ” At the top of column (a) cross out “2006” and enter “2008. Free state tax return filing ” In Part II, cross out “Hurricane” in the title and enter “Recovery Assistance. Free state tax return filing ” On lines 12, 14, and 15, cross out “2005” and enter “2007. Free state tax return filing ” On lines 17 and 19, cross out “2006” and enter “2008. Free state tax return filing ” In Part III, cross out “Hurricane” in the title and enter “Recovery Assistance. Free state tax return filing ” On line 21, cross out “hurricane” and enter “recovery assistance. Free state tax return filing ” On lines 22 and 23, cross out “line 15b” and “line 25b. Free state tax return filing ” On lines 27, 29, and 30, cross out “2005” and enter “2007. Free state tax return filing ” On lines 32 and 34, cross out “2006” and enter “2008. Free state tax return filing ”   You can now complete Form 8915. Free state tax return filing For the instructions, use the applicable dates and terms in this publication instead of those used in the 2006 Form 8915 instructions. Free state tax return filing Example 2. Free state tax return filing   On June 15, 2008, Margaret Maple, from the previous example, took out $15,000 from her 401(k) plan that she is designating as a qualified recovery assistance distribution. Free state tax return filing Since the distribution occurred in 2008, Margaret would modify and complete the 2006 Form 8915 as discussed above. Free state tax return filing Also, since Margaret is including her 2007 recovery assistance distributions in income over 3 years, she reports the applicable amount of those distributions on the modified 2006 Form 8915. Free state tax return filing See Margaret's modified 2006 Form 8915 shown on pages 9 and 10. Free state tax return filing This image is too large to be displayed in the current screen. Free state tax return filing Please click the link to view the image. Free state tax return filing 2006 Form 8915, page 1, Illustrated Example 2 This image is too large to be displayed in the current screen. Free state tax return filing Please click the link to view the image. Free state tax return filing 2006 Form 8915, page 2, Illustrated Example 2 Form 8606. Free state tax return filing   For a 2008 qualified recovery assistance distribution, you may need to complete the 2008 Form 8606. Free state tax return filing Before you complete Form 8606, use the additional instructions outlined in Form 8606, Part I, on page 4 and Form 8606, Part III, on this page. Free state tax return filing Repayment of Qualified Distributions for the Purchase or Construction of a Main Home If you received a qualified distribution to purchase or construct a main home in the Kansas disaster area, you can repay part or all of that distribution after May 3, 2007, but no later than October 22, 2008, to an eligible retirement plan. Free state tax return filing For this purpose, an eligible retirement plan is any plan, annuity, or IRA to which a qualified rollover can be made. Free state tax return filing To be a qualified distribution, the distribution must meet all of the following requirements. Free state tax return filing The distribution is a hardship distribution from a 401(k) plan, a hardship distribution from a tax-sheltered annuity contract, or a qualified first-time homebuyer distribution from an IRA. Free state tax return filing The distribution was received after November 4, 2006, and before May 5, 2007. Free state tax return filing The distribution was to be used to purchase or construct a main home in the Kansas disaster area that was not purchased or constructed because of the storms and tornadoes. Free state tax return filing Amounts that are repaid before October 23, 2008, are treated as a qualified rollover and are not included in income. Free state tax return filing Also, for purposes of the one-rollover-per-year limitation for IRAs, a repayment to an IRA is not considered a qualified rollover. Free state tax return filing A qualified distribution not repaid before October 23, 2008, may be taxable for 2006 or 2007 and subject to the additional 10% tax (or the additional 25% tax for certain SIMPLE IRAs) on early distributions. Free state tax return filing You must file Form 8915 if you received a qualified distribution that you repaid, in whole or in part, before October 23, 2008. Free state tax return filing See How to report, next, for information on completing Form 8915. Free state tax return filing How to report. Free state tax return filing   To report the repayment of a qualified distribution for the purchase or construction of a main home that was not purchased or constructed due to the storms and tornadoes, use the 2005 Form 8915, Part IV. Free state tax return filing Before you complete the form, modify the form as follows. Free state tax return filing Cross out “Hurricane” in the title at the top of the form and enter “Recovery Assistance. Free state tax return filing ” To the right of the title, cross out “2005” and enter “2006” or “2007. Free state tax return filing ” Enter only the year the distribution was received. Free state tax return filing Cross out “Hurricane” in the title of Part IV and enter “Kansas. Free state tax return filing ” In the sentence below the title of Part IV, cross out “March 1, 2006” and enter “October 23, 2008. Free state tax return filing ” On line 24, cross out “March 1, 2006” and enter “October 23, 2008. Free state tax return filing ” You can now complete Part IV of Form 8915. Free state tax return filing Use the applicable dates and terms in this publication instead of those used in the 2005 Form 8915 instructions to complete the form. Free state tax return filing Attach Form 8915 to your original or amended return for the year of the distribution. Free state tax return filing Amended return. Free state tax return filing   If you repay part or all of a qualified distribution by October 22, 2008, you will need to file an amended return for that part of a distribution that was previously included in income. Free state tax return filing Loans From Qualified Plans The following benefits are available to qualified individuals. Free state tax return filing Increases to the limits for distributions treated as loans from employer plans. Free state tax return filing A 1-year suspension for payments due on plan loans. Free state tax return filing Qualified individual. Free state tax return filing   You are a qualified individual if your main home on May 4, 2007, was located in the Kansas disaster area and you had an economic loss because of the storms and tornadoes. Free state tax return filing Examples of an economic loss include, but are not limited to: Loss, damage to, or destruction of real or personal property from fire, flooding, looting, vandalism, theft, wind, or other cause; Loss related to displacement from your home; or Loss of livelihood due to temporary or permanent layoffs. Free state tax return filing Limits on plan loans. Free state tax return filing   The $50,000 limit for distributions treated as plan loans is increased to $100,000. Free state tax return filing In addition, the limit based on 50% of your vested accrued benefit is increased to 100% of that benefit. Free state tax return filing If your home was located in the Kansas disaster area, the higher limits apply only to loans received during the period beginning on May 22, 2008, and ending on December 31, 2008. Free state tax return filing One-year suspension of loan payments. Free state tax return filing   Payments on plan loans outstanding after May 3, 2007, may be suspended for 1 year by the plan administrator. Free state tax return filing To qualify for the suspension, the due date for any loan payment must occur during the period beginning on May 4, 2007, and ending on December 31, 2008. Free state tax return filing Additional Tax Relief for Businesses Special Depreciation Allowance You can take a special depreciation allowance for qualified recovery assistance property (as defined below) you acquire after May 4, 2007. Free state tax return filing The special allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). Free state tax return filing The special allowance applies only for the first year the property is placed in service. Free state tax return filing The special allowance is deductible for both the regular tax and the alternative minimum tax (AMT). Free state tax return filing There is no AMT adjustment required for any depreciation figured on the remaining basis of the property. Free state tax return filing You can elect not to deduct the special allowance for qualified recovery assistance property. Free state tax return filing If you make this election for any property, it applies to all property in the same class placed in service during the year. Free state tax return filing Qualified recovery assistance property. Free state tax return filing   Property that qualifies for the special allowance for qualified recovery assistance property includes the following. Free state tax return filing Tangible property depreciated under the modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. Free state tax return filing Water utility property. Free state tax return filing Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. Free state tax return filing (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS. Free state tax return filing ) Qualified leasehold improvement property. Free state tax return filing Nonresidential real property and residential rental property. Free state tax return filing   For more information on this property, see Publication 946. Free state tax return filing Other tests to be met. Free state tax return filing   To be qualified recovery assistance property, the property must also meet all of the following tests. Free state tax return filing You must have acquired the property, by purchase, after May 4, 2007, but only if no binding written contract for the acquisition was in effect before May 5, 2007. Free state tax return filing The property must be placed in service before 2009 (2010 in the case of nonresidential real property and residential rental property). Free state tax return filing Substantially all of the use of the property must be in the Kansas disaster area and in the active conduct of your trade or business in the Kansas disaster area. Free state tax return filing The original use of the property in the Kansas disaster area must begin with you after May 4, 2007. Free state tax return filing Used property can be qualified recovery assistance property if it has not previously been used within the Kansas disaster area. Free state tax return filing Also, additional capital expenditures you incurred after May 4, 2007, to recondition or rebuild your property meet the original use test if the original use of the property in the Kansas disaster area began with you. Free state tax return filing Excepted property. Free state tax return filing   Qualified recovery assistance property does not include any of the following. Free state tax return filing Property required to be depreciated using the Alternative Depreciation System (ADS). Free state tax return filing Property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103. Free state tax return filing Property for which you are claiming a commercial revitalization deduction. Free state tax return filing Property in the same class as that for which you elected not to claim the special allowance for qualified recovery assistance property. Free state tax return filing Property placed in service and disposed of in the same tax year. Free state tax return filing Property converted from business use to personal use in the same tax year it is placed in service. Free state tax return filing Property converted from personal use to business use in the same or later tax year may be qualified recovery assistance property. Free state tax return filing Recapture of special allowance. Free state tax return filing   If, in any year after the year you claim the special allowance, the property ceases to be qualified recovery assistance property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance. Free state tax return filing Amended return. Free state tax return filing   If you have already filed your tax return, you may have to amend that return to claim any special allowance. Free state tax return filing Additional guidance will be published on how you may claim, or elect not to claim, the special allowance if you have already filed your tax return. Free state tax return filing Increased Section 179 Deduction An increased section 179 deduction is allowable for qualified section 179 recovery assistance property (as defined later) placed in service in the Kansas disaster area. Free state tax return filing Increased dollar limit. Free state tax return filing   The limit on the section 179 deduction ($125,000 for 2007, $250,000 for 2008) is increased by the smaller of: $100,000, or The cost of qualified section 179 recovery assistance property placed in service during the year (including such property placed in service by your spouse, even if you are filing a separate return). Free state tax return filing   The amount for which you can make the election is reduced if the cost of all section 179 property you placed in service during the year exceeds $500,000 for 2007 and $800,000 for 2008 increased by the smaller of: $600,000, or The cost of qualified section 179 recovery assistance property placed in service during the year. Free state tax return filing Qualified section 179 recovery assistance property. Free state tax return filing   Qualified section 179 recovery assistance property is section 179 property that is qualified recovery assistance property (explained earlier under Special Depreciation Allowance). Free state tax return filing Section 179 property does not include nonresidential real property or residential rental property. Free state tax return filing For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946. Free state tax return filing Amended return. Free state tax return filing   If you have already filed your tax return, you may have to amend that return for any increased section 179 deduction. Free state tax return filing Employee Retention Credit An eligible employer who conducted an active trade or business in the Kansas disaster area can claim the employee retention credit. Free state tax return filing The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Free state tax return filing Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Free state tax return filing Use Form 5884-A to claim the credit. Free state tax return filing See Form 5884-A later. Free state tax return filing The following rules and definitions apply. Free state tax return filing Employers affected by the storms and tornadoes. Free state tax return filing   The following definitions apply to employers affected by the storms and tornadoes. Free state tax return filing Eligible employer. Free state tax return filing   For this purpose, an eligible employer is any employer who meets all of the following. Free state tax return filing Employed an average of not more than 200 employees on business days during the tax year before May 4, 2007. Free state tax return filing Conducted an active trade or business on May 4, 2007, in the Kansas disaster area. Free state tax return filing Whose trade or business was inoperable on any day after May 4, 2007, and before January 1, 2008, because of damage caused by the storms and tornadoes. Free state tax return filing Eligible employee. Free state tax return filing   For this purpose, an eligible employee is an employee whose principal place of employment on May 4, 2007, with the eligible employer was in the Kansas disaster area. Free state tax return filing An employee is not an eligible employee for purposes of the storms and tornadoes if the employee is treated as an eligible employee for the work opportunity credit. Free state tax return filing Qualified wages. Free state tax return filing   Qualified wages are wages you paid or incurred before January 1, 2008, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before May 4, 2007, and ending on the date your trade or business resumed significant operations at that place. Free state tax return filing In addition, the wages must have been paid or incurred after May 4, 2007. Free state tax return filing    This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed. Free state tax return filing    Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Free state tax return filing Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Free state tax return filing Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act. Free state tax return filing   For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. Free state tax return filing For a special rule that applies to railroad employees, see section 51(h)(1)(B). Free state tax return filing   Qualified wages do not include the following. Free state tax return filing Wages paid to your dependent or a related individual. Free state tax return filing See section 51(i)(1). Free state tax return filing Wages paid to any employee during the period for which you received payment for the employee from a federally funded on-the-job training program. Free state tax return filing Wages for services of replacement workers during a strike or lockout. Free state tax return filing Form 5884-A. Free state tax return filing   Use Section A of Form 5884-A (Rev. Free state tax return filing October 2006) to claim the employer retention credit. Free state tax return filing Section B does not apply to the Kansas disaster area. Free state tax return filing Before you complete the form, modify the form as follows. Free state tax return filing Cross out “Hurricane Katrina, Rita, or Wilma” in the title at the top of the form and enter “Kansas Storms and Tornadoes. Free state tax return filing ” On line 1a cross out “Hurricane Katrina” and enter “Kansas Storms and Tornadoes,” cross out “August 28, 2005,” and enter “May 4, 2007,” and cross out “January 1, 2006,” and enter “January 1, 2008. Free state tax return filing ”   Complete the form as instructed. Free state tax return filing Lines 1b and 1c do not apply. Free state tax return filing Include the amount from Form 5884-A, line 4 in the amount entered on Form 3800, line 1x. Free state tax return filing On the dotted line to the left of line 1x, enter “5884-A. Free state tax return filing ” Use the applicable dates and terms in this publication instead of those used in the Form 5884-A instructions. Free state tax return filing Amended return. Free state tax return filing   You may have to amend a previously filed return to claim the employee retention credit. Free state tax return filing Demolition and Clean-up Costs You can elect to deduct 50% of any qualified recovery assistance clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Free state tax return filing Qualified recovery assistance clean-up costs are any amounts paid or incurred after May 3, 2007, and before January 1, 2010, for the removal of debris from, or the demolition of structures on, real property located in the Kansas disaster area that is: Held by you for use in a trade or business or for the production of income, or Inventory or other property held primarily for sale to customers in the ordinary course of your trade or business. Free state tax return filing Amended return. Free state tax return filing   If you have already filed your tax return, you may have to amend that return to claim the 50% of any qualified recovery assistance clean-up costs. Free state tax return filing Request for Copy or Transcript of Tax Return Request for copy of tax return. Free state tax return filing   You can use Form 4506 to order a copy of your tax return. Free state tax return filing Generally, there is a $39. Free state tax return filing 00 fee (subject to change) for requesting each copy of a tax return. Free state tax return filing If your main home, principal place of business, or tax records are located in a Presidentially declared disaster area, the fee will be waived if the assigned disaster designation (for example, “Kansas Storms”) is written in red across the top of the form when filed. Free state tax return filing Request for transcript of tax return. Free state tax return filing   You can use Form 4506-T to order a free transcript of your tax return. Free state tax return filing A transcript provides most of the line entries from a tax return and usually contains the information that a third party requires. Free state tax return filing You can also call 1-800-829-1040 to order a transcript. Free state tax return filing How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. Free state tax return filing By selecting the method that is best for you, you will have quick and easy access to tax help. Free state tax return filing Contacting your Taxpayer Advocate. Free state tax return filing   The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. Free state tax return filing   You can contact the TAS by calling the TAS toll-free case intake line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if you are eligible for assistance. Free state tax return filing You can also call or write to your local taxpayer advocate, whose phone number and address are listed in your local telephone directory and in Publication 1546, Taxpayer Advocate Service — Your Voice at the IRS. Free state tax return filing You can file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf. Free state tax return filing For more information, go to www. Free state tax return filing irs. Free state tax return filing gov/advocate. Free state tax return filing Low Income Taxpayer Clinics (LITCs). Free state tax return filing   LITCs are independent organizations that provide low income taxpayers with representation in federal tax controversies with the IRS for free or for a nominal charge. Free state tax return filing The clinics also provide tax education and outreach for taxpayers who speak English as a second language. Free state tax return filing Publication 4134, Low Income Taxpayer Clinic List, provides information on clinics in your area. Free state tax return filing It is available at www. Free state tax return filing irs. Free state tax return filing gov or your local IRS office. Free state tax return filing Free tax services. Free state tax return filing   To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. Free state tax return filing It contains lists of free tax information sources, including publications, services, and free tax education and assistance programs. Free state tax return filing It also has an index of over 100 TeleTax topics, (recorded tax information) you can listen to on your telephone. Free state tax return filing   Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities. Free state tax return filing Free help with your return. Free state tax return filing   Free help in preparing your return is available nationwide from IRS-trained volunteers. Free state tax return filing The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Free state tax return filing Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. Free state tax return filing To find a site near you, call 1-800-829-1040. Free state tax return filing Or to find the nearest AARP TaxAide site, visit AARP's website at www. Free state tax return filing aarp. Free state tax return filing org/taxaide or call 1-888-227-7669. Free state tax return filing For more information on these programs, go to www. Free state tax return filing irs. Free state tax return filing gov and enter keyword “VITA” in the upper right-hand corner. Free state tax return filing Internet. Free state tax return filing You can access the IRS website at www. Free state tax return filing irs. Free state tax return filing gov 24 hours a day, 7 days a week to: E-file your return. Free state tax return filing Find out about commercial tax preparation and e-file services available free to eligible taxpayers. Free state tax return filing Check the status of your refund. Free state tax return filing Click on Where's My Refund. Free state tax return filing Wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Free state tax return filing Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Free state tax return filing Download forms, instructions, and publications. Free state tax return filing Order IRS products online. Free state tax return filing Research your tax questions online. Free state tax return filing Search publications online by topic or keyword. Free state tax return filing View Internal Revenue Bulletins (IRBs) published in the last few years. Free state tax return filing Figure your withholding allowances using the withholding calculator online at www. Free state tax return filing irs. Free state tax return filing gov/individuals. Free state tax return filing Determine if Form 6251 must be filed using our Alternative Minimum Tax (AMT) Assistant. Free state tax return filing Sign up to receive local and national tax news by email. Free state tax return filing Get information on starting and operating a small business. Free state tax return filing Phone. Free state tax return filing Many services are available by phone. Free state tax return filing Ordering forms, instructions, and publications. Free state tax return filing Call 1-800-829-3676 to order current-year forms, instructions, and publications, and prior-year forms and instructions. Free state tax return filing You should receive your order within 10 days. Free state tax return filing Asking tax questions. Free state tax return filing Call the IRS with your tax questions at 1-800-829-1040. Free state tax return filing Solving problems. Free state tax return filing You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. Free state tax return filing An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Free state tax return filing Call your local Taxpayer Assistance Center for an appointment. Free state tax return filing To find the number, go to www. Free state tax return filing irs. Free state tax return filing gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free state tax return filing TTY/TDD equipment. Free state tax return filing If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications. Free state tax return filing TeleTax topics. Free state tax return filing Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics. Free state tax return filing Refund information. Free state tax return filing To check the status of your refund, call 1-800-829-4477 and press 1 for automated refund information or call 1-800-829-1954. Free state tax return filing Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically). Free state tax return filing Have your tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount of your refund. Free state tax return filing Evaluating the quality of our telephone services. Free state tax return filing To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. Free state tax return filing One method is for a second IRS representative to listen in on or record random telephone calls. Free state tax return filing Another is to ask some callers to complete a short survey at the end of the call. Free state tax return filing Walk-in. Free state tax return filing Many products and services are available on a walk-in basis. Free state tax return filing Products. Free state tax return filing You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Free state tax return filing Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Free state tax return filing Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Free state tax return filing Services. Free state tax return filing You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. Free state tax return filing An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. Free state tax return filing If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. Free state tax return filing No appointment is necessary — just walk in. Free state tax return filing If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. Free state tax return filing A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. Free state tax return filing If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment may be requested. Free state tax return filing All other issues will be handled without an appointment. Free state tax return filing To find the number of your local office, go to www. Free state tax return filing irs. Free state tax return filing gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service. Free state tax return filing Mail. Free state tax return filing You can send your order for forms, instructions, and publications to the address below. Free state tax return filing You should receive a response within 10 days after your request is received. Free state tax return filing Internal Revenue Service 1201 N. Free state tax return filing Mitsubishi Motorway Bloomington, IL 61705-6613 CD/DVD for tax products. Free state tax return filing You can order Publication 1796, IRS Tax Products CD/DVD, and obtain: Current-year forms, instructions, and publications. Free state tax return filing Prior-year forms, instructions, and publications. Free state tax return filing Bonus: Historical Tax Products DVD - Ships with the final release. Free state tax return filing IRS Tax Map: an electronic research tool and finding aid. Free state tax return filing Tax law frequently asked questions (FAQ). Free state tax return filing Tax Topics from the IRS telephone response system. Free state tax return filing Fill-in, print, and save features for most tax forms. Free state tax return filing Internal Revenue Bulletins. Free state tax return filing Toll-free and email technical support. Free state tax return filing The CD/DVD is released twice during the year in January and March. Free state tax return filing Purchase the CD/DVD from National Technical Information Service (NTIS) at www. Free state tax return filing irs. Free state tax return filing gov/cdorders for $35 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD/DVD for $35 (plus a $5 handling fee). Free state tax return filing Price is subject to change. Free state tax return filing CD for small businesses. Free state tax return filing Publication 3207, The Small Business Resource Guide CD, is a must for every small business owner or any taxpayer about to start a business. Free state tax return filing This year's CD includes: Helpful information, such as how to prepare a business plan, find financing for your business, and much more. Free state tax return filing All the business tax forms, instructions, and publications needed to successfully manage a business. Free state tax return filing Tax law changes. Free state tax return filing Tax Map: an electronic research tool and finding aid. Free state tax return filing Web links to various government agencies, business associations, and IRS organizations. Free state tax return filing “Rate the Product” survey—your opportunity to suggest changes for future editions. Free state tax return filing A site map of the CD to help you navigate the pages of the CD with ease. Free state tax return filing An interactive “Teens in Biz” module that gives practical tips for teens about starting their own business, creating a business plan, and filing taxes. Free state tax return filing An updated version of this CD is available each year in early April. Free state tax return filing You can get a free copy by calling 1-800-829-3676 or by visiting www. Free state tax return filing irs. Free state tax return filing gov/smallbiz. Free state tax return filing Prev  Up  Next   Home   More Online Publications
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The Free State Tax Return Filing

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