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Irs Gov Freefile State Taxes

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Irs Gov Freefile State Taxes

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

The Irs Gov Freefile State Taxes

Irs gov freefile state taxes 4. Irs gov freefile state taxes   How Income of Aliens Is Taxed Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Resident Aliens Nonresident AliensTrade or Business in the United States Effectively Connected Income The 30% Tax Income From Real Property Transportation Tax Interrupted Period of Residence Expatriation TaxExpatriation Before June 4, 2004 Expatriation After June 3, 2004, and Before June 17, 2008 Expatriation After June 16, 2008 Introduction Resident and nonresident aliens are taxed in different ways. Irs gov freefile state taxes Resident aliens are generally taxed in the same way as U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens. Irs gov freefile state taxes Nonresident aliens are taxed based on the source of their income and whether or not their income is effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes The following discussions will help you determine if income you receive during the tax year is effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business and how it is taxed. Irs gov freefile state taxes Topics - This chapter discusses: Income that is effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes Income that is not effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes Interrupted period of residence. Irs gov freefile state taxes Expatriation tax. Irs gov freefile state taxes Useful Items - You may want to see: Publication 544 Sales and Other Dispositions of Assets 1212 List of Original Issue Discount Instruments Form (and Instructions) 6251 Alternative Minimum Tax—Individuals Schedule D (Form 1040) Capital Gains and Losses See chapter 12 for information about getting these publications and forms. Irs gov freefile state taxes Resident Aliens Resident aliens are generally taxed in the same way as U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens. Irs gov freefile state taxes This means that their worldwide income is subject to U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax and must be reported on their U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax return. Irs gov freefile state taxes Income of resident aliens is subject to the graduated tax rates that apply to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens. Irs gov freefile state taxes Resident aliens use the Tax Table or Tax Computation Worksheets located in the Form 1040 instructions, which apply to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens. Irs gov freefile state taxes Nonresident Aliens A nonresident alien's income that is subject to U. Irs gov freefile state taxes S. Irs gov freefile state taxes income tax must be divided into two categories: Income that is effectively connected with a trade or business in the United States, and Income that is not effectively connected with a trade or business in the United States (discussed under The 30% Tax, later). Irs gov freefile state taxes The difference between these two categories is that effectively connected income, after allowable deductions, is taxed at graduated rates. Irs gov freefile state taxes These are the same rates that apply to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens and residents. Irs gov freefile state taxes Income that is not effectively connected is taxed at a flat 30% (or lower treaty) rate. Irs gov freefile state taxes If you were formerly a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen or resident alien, these rules may not apply. Irs gov freefile state taxes See Expatriation Tax, later, in this chapter. Irs gov freefile state taxes Trade or Business in the United States Generally, you must be engaged in a trade or business during the tax year to be able to treat income received in that year as effectively connected with that trade or business. Irs gov freefile state taxes Whether you are engaged in a trade or business in the United States depends on the nature of your activities. Irs gov freefile state taxes The discussions that follow will help you determine whether you are engaged in a trade or business in the United States. Irs gov freefile state taxes Personal Services If you perform personal services in the United States at any time during the tax year, you usually are considered engaged in a trade or business in the United States. Irs gov freefile state taxes Certain compensation paid to a nonresident alien by a foreign employer is not included in gross income. Irs gov freefile state taxes For more information, see Services Performed for Foreign Employer in chapter 3. Irs gov freefile state taxes Other Trade or Business Activities Other examples of being engaged in a trade or business in the United States follow. Irs gov freefile state taxes Students and trainees. Irs gov freefile state taxes   You are considered engaged in a trade or business in the United States if you are temporarily present in the United States as a nonimmigrant under an “F,” “J,” “M,” or “Q” visa. Irs gov freefile state taxes A nonresident alien temporarily present in the United States under a “J” visa includes a nonresident alien individual admitted to the United States as an exchange visitor under the Mutual Educational and Cultural Exchange Act of 1961. Irs gov freefile state taxes The taxable part of any scholarship or fellowship grant that is U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income is treated as effectively connected with a trade or business in the United States. Irs gov freefile state taxes Business operations. Irs gov freefile state taxes   If you own and operate a business in the United States selling services, products, or merchandise, you are, with certain exceptions, engaged in a trade or business in the United States. Irs gov freefile state taxes Partnerships. Irs gov freefile state taxes   If you are a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, you are considered to be engaged in a trade or business in the United States. Irs gov freefile state taxes Beneficiary of an estate or trust. Irs gov freefile state taxes   If you are the beneficiary of an estate or trust that is engaged in a trade or business in the United States, you are treated as being engaged in the same trade or business. Irs gov freefile state taxes Trading in stocks, securities, and commodities. Irs gov freefile state taxes   If your only U. Irs gov freefile state taxes S. Irs gov freefile state taxes business activity is trading in stocks, securities, or commodities (including hedging transactions) through a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident broker or other agent, you are not engaged in a trade or business in the United States. Irs gov freefile state taxes   For transactions in stocks or securities, this applies to any nonresident alien, including a dealer or broker in stocks and securities. Irs gov freefile state taxes   For transactions in commodities, this applies to commodities that are usually traded on an organized commodity exchange and to transactions that are usually carried out at such an exchange. Irs gov freefile state taxes   This discussion does not apply if you have a U. Irs gov freefile state taxes S. Irs gov freefile state taxes office or other fixed place of business at any time during the tax year through which, or by the direction of which, you carry out your transactions in stocks, securities, or commodities. Irs gov freefile state taxes Trading for a nonresident alien's own account. Irs gov freefile state taxes   You are not engaged in a trade or business in the United States if trading for your own account in stocks, securities, or commodities is your only U. Irs gov freefile state taxes S. Irs gov freefile state taxes business activity. Irs gov freefile state taxes This applies even if the trading takes place while you are present in the United States or is done by your employee or your broker or other agent. Irs gov freefile state taxes   This does not apply to trading for your own account if you are a dealer in stocks, securities, or commodities. Irs gov freefile state taxes This does not necessarily mean, however, that as a dealer you are considered to be engaged in a trade or business in the United States. Irs gov freefile state taxes Determine that based on the facts and circumstances in each case or under the rules given above in Trading in stocks, securities, and commodities . Irs gov freefile state taxes Effectively Connected Income If you are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business, all income, gain, or loss for the tax year that you get from sources within the United States (other than certain investment income) is treated as effectively connected income. Irs gov freefile state taxes This applies whether or not there is any connection between the income and the trade or business being carried on in the United States during the tax year. Irs gov freefile state taxes Two tests, described next under Investment Income, determine whether certain items of investment income (such as interest, dividends, and royalties) are treated as effectively connected with that business. Irs gov freefile state taxes In limited circumstances, some kinds of foreign source income may be treated as effectively connected with a trade or business in the United States. Irs gov freefile state taxes For a discussion of these rules, see Foreign Income , later. Irs gov freefile state taxes Investment Income Investment income from U. Irs gov freefile state taxes S. Irs gov freefile state taxes sources that may or may not be treated as effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business generally falls into the following three categories. Irs gov freefile state taxes Fixed or determinable income (interest, dividends, rents, royalties, premiums, annuities, etc. Irs gov freefile state taxes ). Irs gov freefile state taxes Gains (some of which are considered capital gains) from the sale or exchange of the following types of property. Irs gov freefile state taxes Timber, coal, or domestic iron ore with a retained economic interest. Irs gov freefile state taxes Patents, copyrights, and similar property on which you receive contingent payments after October 4, 1966. Irs gov freefile state taxes Patents transferred before October 5, 1966. Irs gov freefile state taxes Original issue discount obligations. Irs gov freefile state taxes Capital gains (and losses). Irs gov freefile state taxes Use the two tests, described next, to determine whether an item of U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income falling in one of the three categories above and received during the tax year is effectively connected with your U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes If the tests indicate that the item of income is effectively connected, you must include it with your other effectively connected income. Irs gov freefile state taxes If the item of income is not effectively connected, include it with all other income discussed under The 30% Tax later, in this chapter. Irs gov freefile state taxes Asset-use test. Irs gov freefile state taxes   This test usually applies to income that is not directly produced by trade or business activities. Irs gov freefile state taxes Under this test, if an item of income is from assets (property) used in, or held for use in, the trade or business in the United States, it is considered effectively connected. Irs gov freefile state taxes   An asset is used in, or held for use in, the trade or business in the United States if the asset is: Held for the principal purpose of promoting the conduct of a trade or business in the United States, Acquired and held in the ordinary course of the trade or business conducted in the United States (for example, an account receivable or note receivable arising from that trade or business), or Otherwise held to meet the present needs of the trade or business in the United States and not its anticipated future needs. Irs gov freefile state taxes Generally, stock of a corporation is not treated as an asset used in, or held for use in, a trade or business in the United States. Irs gov freefile state taxes Business-activities test. Irs gov freefile state taxes   This test usually applies when income, gain, or loss comes directly from the active conduct of the trade or business. Irs gov freefile state taxes The business-activities test is most important when: Dividends or interest are received by a dealer in stocks or securities, Royalties are received in the trade or business of licensing patents or similar property, or Service fees are earned by a servicing business. Irs gov freefile state taxes Under this test, if the conduct of the U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business was a material factor in producing the income, the income is considered effectively connected. Irs gov freefile state taxes Personal Service Income You usually are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business when you perform personal services in the United States. Irs gov freefile state taxes Personal service income you receive in a tax year in which you are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business is effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes Income received in a year other than the year you performed the services is also effectively connected if it would have been effectively connected if received in the year you performed the services. Irs gov freefile state taxes Personal service income includes wages, salaries, commissions, fees, per diem allowances, and employee allowances and bonuses. Irs gov freefile state taxes The income may be paid to you in the form of cash, services, or property. Irs gov freefile state taxes If you are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business only because you perform personal services in the United States during the tax year, income and gains from assets, and gains and losses from the sale or exchange of capital assets are generally not effectively connected with your trade or business. Irs gov freefile state taxes However, if there is a direct economic relationship between your holding of the asset and your trade or business of performing personal services, the income, gain, or loss is effectively connected. Irs gov freefile state taxes Pensions. Irs gov freefile state taxes   If you were a nonresident alien engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business after 1986 because you performed personal services in the United States, and you later receive a pension or retirement pay attributable to these services, such payments are effectively connected income in each year you receive them. Irs gov freefile state taxes This is true whether or not you are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business in the year you receive the retirement pay. Irs gov freefile state taxes Transportation Income Transportation income (defined in chapter 2) is effectively connected if you meet both of the following conditions. Irs gov freefile state taxes You had a fixed place of business in the United States involved in earning the income. Irs gov freefile state taxes At least 90% of your U. Irs gov freefile state taxes S. Irs gov freefile state taxes source transportation income is attributable to regularly scheduled transportation. Irs gov freefile state taxes “Fixed place of business” generally means a place, site, structure, or other similar facility through which you engage in a trade or business. Irs gov freefile state taxes “Regularly scheduled transportation” means that a ship or aircraft follows a published schedule with repeated sailings or flights at regular intervals between the same points for voyages or flights that begin or end in the United States. Irs gov freefile state taxes This definition applies to both scheduled and chartered air transportation. Irs gov freefile state taxes If you do not meet the two conditions above, the income is not effectively connected and is taxed at a 4% rate. Irs gov freefile state taxes See Transportation Tax, later, in this chapter. Irs gov freefile state taxes Business Profits and Losses and Sales Transactions All profits or losses from U. Irs gov freefile state taxes S. Irs gov freefile state taxes sources that are from the operation of a business in the United States are effectively connected with a trade or business in the United States. Irs gov freefile state taxes For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. Irs gov freefile state taxes A share of U. Irs gov freefile state taxes S. Irs gov freefile state taxes source profits or losses of a partnership that is engaged in a trade or business in the United States is also effectively connected with a trade or business in the United States. Irs gov freefile state taxes Real Property Gain or Loss Gains and losses from the sale or exchange of U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interests (whether or not they are capital assets) are taxed as if you are engaged in a trade or business in the United States. Irs gov freefile state taxes You must treat the gain or loss as effectively connected with that trade or business. Irs gov freefile state taxes U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest. Irs gov freefile state taxes   This is any interest in real property located in the United States or the U. Irs gov freefile state taxes S. Irs gov freefile state taxes Virgin Islands or any interest (other than as a creditor) in a domestic corporation that is a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation. Irs gov freefile state taxes Real property includes the following. Irs gov freefile state taxes Land and unsevered natural products of the land, such as growing crops and timber, and mines, wells, and other natural deposits. Irs gov freefile state taxes Improvements on land, including buildings, other permanent structures, and their structural components. Irs gov freefile state taxes Personal property associated with the use of real property, such as equipment used in farming, mining, forestry, or construction or property used in lodging facilities or rented office space, unless the personal property is: Disposed of more than one year before or after the disposition of the real property, or Separately sold to persons unrelated either to the seller or to the buyer of the real property. Irs gov freefile state taxes U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation. Irs gov freefile state taxes   A corporation is a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation if the fair market value of the corporation's U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interests are at least 50% of the total fair market value of: The corporation's U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interests, plus The corporation's interests in real property located outside the United States, plus The corporation's other assets that are used in, or held for use in, a trade or business. Irs gov freefile state taxes   Gain or loss on the sale of the stock in any domestic corporation is taxed as if you are engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business unless you establish that the corporation is not a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation. Irs gov freefile state taxes   A U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest does not include a class of stock of a corporation that is regularly traded on an established securities market, unless you hold more than 5% of the fair market value of that class of stock. Irs gov freefile state taxes An interest in a foreign corporation owning U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property generally is not a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest unless the corporation chooses to be treated as a domestic corporation. Irs gov freefile state taxes Qualified investment entities. Irs gov freefile state taxes   Special rules apply to qualified investment entities (QIEs). Irs gov freefile state taxes A QIE is any real estate investment trust (REIT) or any regulated investment company (RIC) that is a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation. Irs gov freefile state taxes    Generally, any distribution from a QIE to a shareholder that is attributable to gain from the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest is treated as a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property gain by the shareholder receiving the distribution. Irs gov freefile state taxes A distribution by a QIE on stock regularly traded on an established securities market in the United States is not treated as gain from the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest if you did not own more than 5% of that stock at any time during the 1-year period ending on the date of the distribution. Irs gov freefile state taxes A distribution that you do not treat as gain from the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest is included in your gross income as a regular dividend. Irs gov freefile state taxes Note. Irs gov freefile state taxes Beginning January 1, 2014 (unless extended by legislation), a RIC that is a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property holding corporation will only be treated as a QIE for certain distributions from the RIC that are directly or indirectly attributable to distributions received by the RIC from a REIT. Irs gov freefile state taxes Domestically controlled QIE. Irs gov freefile state taxes   The sale of an interest in a domestically controlled QIE is not the sale of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest. Irs gov freefile state taxes The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. Irs gov freefile state taxes The testing period is the shorter of (a) the 5-year period ending on the date of disposition, or (b) the period during which the entity was in existence. Irs gov freefile state taxes Wash sale. Irs gov freefile state taxes    If you dispose of an interest in a domestically controlled QIE in an applicable wash sale transaction, special rules apply. Irs gov freefile state taxes An applicable wash sale transaction is one in which you: Dispose of an interest in the domestically controlled QIE during the 30-day period before the ex-dividend date of a distribution that you would (but for the disposition) have treated as gain from the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest, and Acquire, or enter into a contract or option to acquire, a substantially identical interest in that entity during the 61-day period that began on the first day of the 30-day period. Irs gov freefile state taxes If this occurs, you are treated as having gain from the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest in an amount equal to the distribution made after June 15, 2006, that would have been treated as such gain. Irs gov freefile state taxes This also applies to any substitute dividend payment. Irs gov freefile state taxes   A transaction is not treated as an applicable wash sale transaction if: You actually receive the distribution from the domestically controlled QIE related to the interest disposed of, or acquired, in the transaction, or You dispose of any class of stock in a QIE that is regularly traded on an established securities market in the United States but only if you did not own more than 5% of that class of stock at any time during the 1-year period ending on the date of the distribution. Irs gov freefile state taxes Alternative minimum tax. Irs gov freefile state taxes   There may be a minimum tax on your net gain from the disposition of U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interests. Irs gov freefile state taxes Figure the amount of this tax, if any, on Form 6251. Irs gov freefile state taxes Withholding of tax. Irs gov freefile state taxes   If you dispose of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest, the buyer may have to withhold tax. Irs gov freefile state taxes See the discussion of Tax Withheld on Real Property Sales in chapter 8. Irs gov freefile state taxes Foreign Income You must treat three kinds of foreign source income as effectively connected with a trade or business in the United States if: You have an office or other fixed place of business in the United States to which the income can be attributed, That office or place of business is a material factor in producing the income, and The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Irs gov freefile state taxes An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Irs gov freefile state taxes The three kinds of foreign source income are listed below. Irs gov freefile state taxes Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the United States or from any interest in such property. Irs gov freefile state taxes Included are rents or royalties for the use, or for the privilege of using, outside the United States, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the United States. Irs gov freefile state taxes Dividends, interest, or amounts received for the provision of a guarantee of indebtedness issued after September 27, 2010, from the active conduct of a banking, financing, or similar business in the United States. Irs gov freefile state taxes A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Irs gov freefile state taxes Income, gain, or loss from the sale outside the United States, through the U. Irs gov freefile state taxes S. Irs gov freefile state taxes office or other fixed place of business, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Irs gov freefile state taxes Item (3) will not apply if you sold the property for use, consumption, or disposition outside the United States and an office or other fixed place of business in a foreign country was a material factor in the sale. Irs gov freefile state taxes Any foreign source income that is equivalent to any item of income described above is treated as effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes For example, foreign source interest and dividend equivalents are treated as U. Irs gov freefile state taxes S. Irs gov freefile state taxes effectively connected income if the income is derived by a foreign person in the active conduct of a banking, financing, or similar business within the United States. Irs gov freefile state taxes Tax on Effectively Connected Income Income you receive during the tax year that is effectively connected with your trade or business in the United States is, after allowable deductions, taxed at the rates that apply to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens and residents. Irs gov freefile state taxes Generally, you can receive effectively connected income only if you are a nonresident alien engaged in trade or business in the United States during the tax year. Irs gov freefile state taxes However, income you receive from the sale or exchange of property, the performance of services, or any other transaction in another tax year is treated as effectively connected in that year if it would have been effectively connected in the year the transaction took place or you performed the services. Irs gov freefile state taxes Example. Irs gov freefile state taxes Ted Richards, a nonresident alien, entered the United States in August 2012, to perform personal services in the U. Irs gov freefile state taxes S. Irs gov freefile state taxes office of his overseas employer. Irs gov freefile state taxes He worked in the U. Irs gov freefile state taxes S. Irs gov freefile state taxes office until December 25, 2012, but did not leave this country until January 11, 2013. Irs gov freefile state taxes On January 8, 2013, he received his final paycheck for services performed in the United States during 2012. Irs gov freefile state taxes All of Ted's income during his stay here is U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income. Irs gov freefile state taxes During 2012, Ted was engaged in the trade or business of performing personal services in the United States. Irs gov freefile state taxes Therefore, all amounts paid to him in 2012 for services performed in the United States during 2012 are effectively connected with that trade or business during 2012. Irs gov freefile state taxes The salary payment Ted received in January 2013 is U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income to him in 2013. Irs gov freefile state taxes It is effectively connected with a trade or business in the United States because he was engaged in a trade or business in the United States during 2012 when he performed the services that earned the income. Irs gov freefile state taxes Real property income. Irs gov freefile state taxes   You may be able to choose to treat all income from real property as effectively connected. Irs gov freefile state taxes See Income From Real Property , later, in this chapter. Irs gov freefile state taxes The 30% Tax Tax at a 30% (or lower treaty) rate applies to certain items of income or gains from U. Irs gov freefile state taxes S. Irs gov freefile state taxes sources but only if the items are not effectively connected with your U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes Fixed or Determinable Income The 30% (or lower treaty) rate applies to the gross amount of U. Irs gov freefile state taxes S. Irs gov freefile state taxes source fixed or determinable annual or periodic gains, profits, or income. Irs gov freefile state taxes Income is fixed when it is paid in amounts known ahead of time. Irs gov freefile state taxes Income is determinable whenever there is a basis for figuring the amount to be paid. Irs gov freefile state taxes Income can be periodic if it is paid from time to time. Irs gov freefile state taxes It does not have to be paid annually or at regular intervals. Irs gov freefile state taxes Income can be determinable or periodic even if the length of time during which the payments are made is increased or decreased. Irs gov freefile state taxes Items specifically included as fixed or determinable income are interest (other than original issue discount), dividends, dividend equivalent payments (defined in chapter 2), rents, premiums, annuities, salaries, wages, and other compensation. Irs gov freefile state taxes A substitute dividend or interest payment received under a securities lending transaction or a sale-repurchase transaction is treated the same as the amounts received on the transferred security. Irs gov freefile state taxes Other items of income, such as royalties, also may be subject to the 30% tax. Irs gov freefile state taxes Some fixed or determinable income may be exempt from U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax. Irs gov freefile state taxes See chapter 3 if you are not sure whether the income is taxable. Irs gov freefile state taxes Original issue discount (OID). Irs gov freefile state taxes   If you sold, exchanged, or received a payment on a bond or other debt instrument that was issued at a discount after March 31, 1972, all or part of the original issue discount (OID) (other than portfolio interest) may be subject to the 30% tax. Irs gov freefile state taxes The amount of OID is the difference between the stated redemption price at maturity and the issue price of the debt instrument. Irs gov freefile state taxes The 30% tax applies in the following circumstances. Irs gov freefile state taxes You received a payment on a debt instrument. Irs gov freefile state taxes In this case, the amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the OID previously taken into account. Irs gov freefile state taxes But the tax on the OID cannot be more than the payment minus the tax on the interest payment on the debt instrument. Irs gov freefile state taxes You sold or exchanged the debt instrument. Irs gov freefile state taxes The amount of OID subject to tax is the OID that accrued while you held the debt instrument minus the amount already taxed in (1) above. Irs gov freefile state taxes   Report on your return the amount of OID shown on Form 1042-S, Foreign Person's U. Irs gov freefile state taxes S. Irs gov freefile state taxes Source Income Subject to Withholding, if you bought the debt instrument at original issue. Irs gov freefile state taxes However, you must recompute your proper share of OID shown on Form 1042-S if any of the following apply. Irs gov freefile state taxes You bought the debt instrument at a premium or paid an acquisition premium. Irs gov freefile state taxes The debt instrument is a stripped bond or a stripped coupon (including zero coupon instruments backed by U. Irs gov freefile state taxes S. Irs gov freefile state taxes Treasury securities). Irs gov freefile state taxes The debt instrument is a contingent payment or inflation-indexed debt instrument. Irs gov freefile state taxes For the definition of premium and acquisition premium and instructions on how to recompute OID, get Publication 1212. Irs gov freefile state taxes   If you held a bond or other debt instrument that was issued at a discount before April 1, 1972, contact the IRS for further information. Irs gov freefile state taxes See chapter 12. Irs gov freefile state taxes Gambling Winnings In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business and is not exempted by treaty. Irs gov freefile state taxes However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States. Irs gov freefile state taxes Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes Social Security Benefits A nonresident alien must include 85% of any U. Irs gov freefile state taxes S. Irs gov freefile state taxes social security benefit (and the social security equivalent part of a tier 1 railroad retirement benefit) in U. Irs gov freefile state taxes S. Irs gov freefile state taxes source fixed or determinable annual or periodic income. Irs gov freefile state taxes Social security benefits include monthly retirement, survivor, and disability benefits. Irs gov freefile state taxes This income is exempt under some tax treaties. Irs gov freefile state taxes See Table 1 in Publication 901, U. Irs gov freefile state taxes S. Irs gov freefile state taxes Tax Treaties, for a list of tax treaties that exempt U. Irs gov freefile state taxes S. Irs gov freefile state taxes social security benefits from U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax. Irs gov freefile state taxes Sales or Exchanges of Capital Assets These rules apply only to those capital gains and losses from sources in the United States that are not effectively connected with a trade or business in the United States. Irs gov freefile state taxes They apply even if you are engaged in a trade or business in the United States. Irs gov freefile state taxes These rules do not apply to the sale or exchange of a U. Irs gov freefile state taxes S. Irs gov freefile state taxes real property interest or to the sale of any property that is effectively connected with a trade or business in the United States. Irs gov freefile state taxes See Real Property Gain or Loss , earlier, under Effectively Connected Income. Irs gov freefile state taxes A capital asset is everything you own except: Inventory. Irs gov freefile state taxes Business accounts or notes receivable. Irs gov freefile state taxes Depreciable property used in a trade or business. Irs gov freefile state taxes Real property used in a trade or business. Irs gov freefile state taxes Supplies regularly used in a trade or business. Irs gov freefile state taxes Certain copyrights, literary or musical or artistic compositions, letters or memoranda, or similar property. Irs gov freefile state taxes Certain U. Irs gov freefile state taxes S. Irs gov freefile state taxes government publications. Irs gov freefile state taxes Certain commodities derivative financial instruments held by a commodities derivatives dealer. Irs gov freefile state taxes Hedging transactions. Irs gov freefile state taxes A capital gain is a gain on the sale or exchange of a capital asset. Irs gov freefile state taxes A capital loss is a loss on the sale or exchange of a capital asset. Irs gov freefile state taxes If the sale is in foreign currency, for the purpose of determining gain, the cost and selling price of the property should be expressed in U. Irs gov freefile state taxes S. Irs gov freefile state taxes currency at the rate of exchange prevailing as of the date of the purchase and date of the sale, respectively. Irs gov freefile state taxes You may want to read Publication 544. Irs gov freefile state taxes However, use Publication 544 only to determine what is a sale or exchange of a capital asset, or what is treated as such. Irs gov freefile state taxes Specific tax treatment that applies to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens or residents generally does not apply to you. Irs gov freefile state taxes The following gains are subject to the 30% (or lower treaty) rate without regard to the 183-day rule, discussed later. Irs gov freefile state taxes Gains on the disposal of timber, coal, or domestic iron ore with a retained economic interest. Irs gov freefile state taxes Gains on contingent payments received from the sale or exchange of patents, copyrights, and similar property after October 4, 1966. Irs gov freefile state taxes Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966. Irs gov freefile state taxes Gains on the sale or exchange of original issue discount obligations. Irs gov freefile state taxes Gains in (1) are not subject to the 30% (or lower treaty) rate if you choose to treat the gains as effectively connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes See Income From Real Property , later. Irs gov freefile state taxes 183-day rule. Irs gov freefile state taxes   If you were in the United States for 183 days or more during the tax year, your net gain from sales or exchanges of capital assets is taxed at a 30% (or lower treaty) rate. Irs gov freefile state taxes For purposes of the 30% (or lower treaty) rate, net gain is the excess of your capital gains from U. Irs gov freefile state taxes S. Irs gov freefile state taxes sources over your capital losses from U. Irs gov freefile state taxes S. Irs gov freefile state taxes sources. Irs gov freefile state taxes This rule applies even if any of the transactions occurred while you were not in the United States. Irs gov freefile state taxes   To determine your net gain, consider the amount of your gains and losses that would be recognized and taken into account only if, and to the extent that, they would be recognized and taken into account if you were in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business during the year and the gains and losses were effectively connected with that trade or business during the tax year. Irs gov freefile state taxes   In arriving at your net gain, do not take the following into consideration. Irs gov freefile state taxes The four types of gains listed earlier. Irs gov freefile state taxes The deduction for a capital loss carryover. Irs gov freefile state taxes Capital losses in excess of capital gains. Irs gov freefile state taxes Exclusion for gain from the sale or exchange of qualified small business stock (section 1202 exclusion). Irs gov freefile state taxes Losses from the sale or exchange of property held for personal use. Irs gov freefile state taxes However, losses resulting from casualties or thefts may be deductible on Schedule A (Form 1040NR). Irs gov freefile state taxes See Itemized Deductions in chapter 5. Irs gov freefile state taxes   If you are not engaged in a trade or business in the United States and have not established a tax year for a prior period, your tax year will be the calendar year for purposes of the 183-day rule. Irs gov freefile state taxes Also, you must file your tax return on a calendar-year basis. Irs gov freefile state taxes   If you were in the United States for less than 183 days during the tax year, capital gains (other than gains listed earlier) are tax exempt unless they are effectively connected with a trade or business in the United States during your tax year. Irs gov freefile state taxes Reporting. Irs gov freefile state taxes   Report your gains and losses from the sales or exchanges of capital assets that are not effectively connected with a trade or business in the United States on page 4 of Form 1040NR. Irs gov freefile state taxes Report gains and losses from sales or exchanges of capital assets (including real property) that are effectively connected with a trade or business in the United States on a separate Schedule D (Form 1040), Form 4797, or both. Irs gov freefile state taxes Attach them to Form 1040NR. Irs gov freefile state taxes Income From Real Property If you have income from real property located in the United States that you own or have an interest in and hold for the production of income, you can choose to treat all income from that property as income effectively connected with a trade or business in the United States. Irs gov freefile state taxes The choice applies to all income from real property located in the United States and held for the production of income and to all income from any interest in such property. Irs gov freefile state taxes This includes income from rents, royalties from mines, oil or gas wells, or other natural resources. Irs gov freefile state taxes It also includes gains from the sale or exchange of timber, coal, or domestic iron ore with a retained economic interest. Irs gov freefile state taxes You can make this choice only for real property income that is not otherwise effectively connected with your U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes If you make the choice, you can claim deductions attributable to the real property income and only your net income from real property is taxed. Irs gov freefile state taxes This choice does not treat a nonresident alien, who is not otherwise engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business, as being engaged in a trade or business in the United States during the year. Irs gov freefile state taxes Example. Irs gov freefile state taxes You are a nonresident alien and are not engaged in a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes You own a single-family house in the United States that you rent out. Irs gov freefile state taxes Your rental income for the year is $10,000. Irs gov freefile state taxes This is your only U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income. Irs gov freefile state taxes As discussed earlier under The 30% Tax, the rental income is subject to a tax at a 30% (or lower treaty) rate. Irs gov freefile state taxes You received a Form 1042-S showing that your tenants properly withheld this tax from the rental income. Irs gov freefile state taxes You do not have to file a U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax return (Form 1040NR) because your U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax liability is satisfied by the withholding of tax. Irs gov freefile state taxes If you make the choice discussed earlier, you can offset the $10,000 income by certain rental expenses. Irs gov freefile state taxes (See Publication 527, Residential Rental Property, for information on rental expenses. Irs gov freefile state taxes ) Any resulting net income is taxed at graduated rates. Irs gov freefile state taxes If you make this choice, report the rental income and expenses on Schedule E (Form 1040) and attach the schedule to Form 1040NR. Irs gov freefile state taxes For the first year you make the choice, also attach the statement discussed next. Irs gov freefile state taxes Making the choice. Irs gov freefile state taxes   Make the initial choice by attaching a statement to your return, or amended return, for the year of the choice. Irs gov freefile state taxes Include the following in your statement. Irs gov freefile state taxes That you are making the choice. Irs gov freefile state taxes Whether the choice is under Internal Revenue Code section 871(d) (explained earlier) or a tax treaty. Irs gov freefile state taxes A complete list of all your real property, or any interest in real property, located in the United States. Irs gov freefile state taxes Give the legal identification of U. Irs gov freefile state taxes S. Irs gov freefile state taxes timber, coal, or iron ore in which you have an interest. Irs gov freefile state taxes The extent of your ownership in the property. Irs gov freefile state taxes The location of the property. Irs gov freefile state taxes A description of any major improvements to the property. Irs gov freefile state taxes The dates you owned the property. Irs gov freefile state taxes Your income from the property. Irs gov freefile state taxes Details of any previous choices and revocations of the real property income choice. Irs gov freefile state taxes   This choice stays in effect for all later tax years unless you revoke it. Irs gov freefile state taxes Revoking the choice. Irs gov freefile state taxes   You can revoke the choice without IRS approval by filing Form 1040X, Amended U. Irs gov freefile state taxes S. Irs gov freefile state taxes Individual Income Tax Return, for the year you made the choice and for later tax years. Irs gov freefile state taxes You must file Form 1040X within 3 years from the date your return was filed or 2 years from the time the tax was paid, whichever is later. Irs gov freefile state taxes If this time period has expired for the year of choice, you cannot revoke the choice for that year. Irs gov freefile state taxes However, you may revoke the choice for later tax years only if you have IRS approval. Irs gov freefile state taxes For information on how to get IRS approval, see Regulation section 1. Irs gov freefile state taxes 871-10(d)(2). Irs gov freefile state taxes Transportation Tax A 4% tax rate applies to transportation income that is not effectively connected because it does not meet the two conditions listed earlier under Transportation Income . Irs gov freefile state taxes If you receive transportation income subject to the 4% tax, you should figure the tax and show it on line 57 of Form 1040NR. Irs gov freefile state taxes Attach a statement to your return that includes the following information (if applicable). Irs gov freefile state taxes Your name, taxpayer identification number, and tax year. Irs gov freefile state taxes A description of the types of services performed (whether on or off board). Irs gov freefile state taxes Names of vessels or registration numbers of aircraft on which you performed the services. Irs gov freefile state taxes Amount of U. Irs gov freefile state taxes S. Irs gov freefile state taxes source transportation income derived from each type of service for each vessel or aircraft for the calendar year. Irs gov freefile state taxes Total amount of U. Irs gov freefile state taxes S. Irs gov freefile state taxes source transportation income derived from all types of services for the calendar year. Irs gov freefile state taxes This 4% tax applies to your U. Irs gov freefile state taxes S. Irs gov freefile state taxes source gross transportation income. Irs gov freefile state taxes This only includes transportation income that is treated as derived from sources in the United States if the transportation begins or ends in the United States. Irs gov freefile state taxes For transportation income from personal services, the transportation must be between the United States and a U. Irs gov freefile state taxes S. Irs gov freefile state taxes possession. Irs gov freefile state taxes For personal services of a nonresident alien, this only applies to income derived from, or in connection with, an aircraft. Irs gov freefile state taxes Interrupted Period of Residence You are subject to tax under a special rule if you interrupt your period of U. Irs gov freefile state taxes S. Irs gov freefile state taxes residence with a period of nonresidence. Irs gov freefile state taxes The special rule applies if you meet all of the following conditions. Irs gov freefile state taxes You were a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident for a period that includes at least 3 consecutive calendar years. Irs gov freefile state taxes You were a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident for at least 183 days in each of those years. Irs gov freefile state taxes You ceased to be treated as a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident. Irs gov freefile state taxes You then again became a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident before the end of the third calendar year after the end of the period described in (1) above. Irs gov freefile state taxes Under this special rule, you are subject to tax on your U. Irs gov freefile state taxes S. Irs gov freefile state taxes source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) for the period you were a nonresident alien, unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes For information on how to figure the special tax, see How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) under Expatriation Tax , below. Irs gov freefile state taxes Example. Irs gov freefile state taxes John Willow, a citizen of New Zealand, entered the United States on April 1, 2008, as a lawful permanent resident. Irs gov freefile state taxes On August 1, 2010, John ceased to be a lawful permanent resident and returned to New Zealand. Irs gov freefile state taxes During his period of residence, he was present in the United States for at least 183 days in each of three consecutive years (2008, 2009, and 2010). Irs gov freefile state taxes He returned to the United States on October 5, 2013, as a lawful permanent resident. Irs gov freefile state taxes He became a resident before the close of the third calendar year (2013) beginning after the end of his first period of residence (August 1, 2010). Irs gov freefile state taxes Therefore, he is subject to tax under the special rule for the period of nonresidence (August 2, 2010, through October 4, 2013) if it is more than the tax that would normally apply to him as a nonresident alien. Irs gov freefile state taxes Reporting requirements. Irs gov freefile state taxes   If you are subject to this tax for any year in the period you were a nonresident alien, you must file Form 1040NR for that year. Irs gov freefile state taxes The return is due by the due date (including extensions) for filing your U. Irs gov freefile state taxes S. Irs gov freefile state taxes income tax return for the year that you again become a U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident. Irs gov freefile state taxes If you already filed returns for that period, you must file amended returns. Irs gov freefile state taxes You must attach a statement to your return that identifies the source of all of your U. Irs gov freefile state taxes S. Irs gov freefile state taxes and foreign gross income and the items of income subject to this special rule. Irs gov freefile state taxes Expatriation Tax The expatriation tax provisions apply to U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizens who have renounced their citizenship and long-term residents who have ended their residency. Irs gov freefile state taxes The rules that apply are based on the dates of expatriation, which are described in the following sections. Irs gov freefile state taxes Expatriation Before June 4, 2004. Irs gov freefile state taxes Expatriation After June 3, 2004, and Before June 17, 2008. Irs gov freefile state taxes Expatriation After June 16, 2008. Irs gov freefile state taxes Long-term resident defined. Irs gov freefile state taxes   You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. Irs gov freefile state taxes In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits. Irs gov freefile state taxes Expatriation Before June 4, 2004 If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U. Irs gov freefile state taxes S. Irs gov freefile state taxes taxes. Irs gov freefile state taxes Unless you received a ruling from the IRS that you did not expatriate to avoid U. Irs gov freefile state taxes S. Irs gov freefile state taxes taxes, you are presumed to have tax avoidance as a principal purpose if: Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or Your net worth on the date of your action was $500,000 or more. Irs gov freefile state taxes The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1). Irs gov freefile state taxes Table 4-1. Irs gov freefile state taxes Inflation-Adjusted Amounts for Expatriation Actions Before June 4, 2004 IF you expatriated during . Irs gov freefile state taxes . Irs gov freefile state taxes . Irs gov freefile state taxes   THEN the rules outlined on this page apply if . Irs gov freefile state taxes . Irs gov freefile state taxes . Irs gov freefile state taxes     Your 5-year average annual net income tax was more than . Irs gov freefile state taxes . Irs gov freefile state taxes . Irs gov freefile state taxes OR Your net worth equaled or exceeded . Irs gov freefile state taxes . Irs gov freefile state taxes . Irs gov freefile state taxes 1999   110,000   552,000 2000   112,000   562,000 2001   116,000   580,000 2002   120,000   599,000 2003   122,000   608,000 2004 (before June 4)*   124,000   622,000 *If you expatriated after June 3, 2004, see Expatriation After June 3, 2004, and Before June 17, 2008 or Expatriation After June 16, 2008. Irs gov freefile state taxes Reporting requirements. Irs gov freefile state taxes   If you lost your U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. Irs gov freefile state taxes If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Irs gov freefile state taxes   Your U. Irs gov freefile state taxes S. Irs gov freefile state taxes residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits. Irs gov freefile state taxes Penalties. Irs gov freefile state taxes   If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. Irs gov freefile state taxes The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. Irs gov freefile state taxes The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect. Irs gov freefile state taxes Expatriation tax. Irs gov freefile state taxes   The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. Irs gov freefile state taxes It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. Irs gov freefile state taxes See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section. Irs gov freefile state taxes Expatriation After June 3, 2004, and Before June 17, 2008 If you expatriated after June 3, 2004, and before June 17, 2008, the expatriation rules apply to you if any of the following statements apply. Irs gov freefile state taxes Your average annual net income tax for the 5 tax years ending before the date of expatriation or termination of residency is more than: $124,000 if you expatriated or terminated residency in 2004. Irs gov freefile state taxes $127,000 if you expatriated or terminated residency in 2005. Irs gov freefile state taxes $131,000 if you expatriated or terminated residency in 2006. Irs gov freefile state taxes $136,000 if you expatriated or terminated residency in 2007. Irs gov freefile state taxes $139,000 if you expatriated or terminated residency in 2008. Irs gov freefile state taxes Your net worth is $2 million or more on the date of your expatriation or termination of residency. Irs gov freefile state taxes You fail to certify on Form 8854 that you have complied with all U. Irs gov freefile state taxes S. Irs gov freefile state taxes federal tax obligations for the 5 tax years preceding the date of your expatriation or termination of residency. Irs gov freefile state taxes Exception for dual-citizens and certain minors. Irs gov freefile state taxes   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) earlier. Irs gov freefile state taxes However, they still must provide the certification required in (3). Irs gov freefile state taxes Certain dual-citizens. Irs gov freefile state taxes   You may qualify for the exception described above if all of the following apply. Irs gov freefile state taxes You became at birth a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen and a citizen of another country and you continue to be a citizen of that other country. Irs gov freefile state taxes You were never a resident alien of the United States (as defined in chapter 1). Irs gov freefile state taxes You never held a U. Irs gov freefile state taxes S. Irs gov freefile state taxes passport. Irs gov freefile state taxes You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizenship. Irs gov freefile state taxes Certain minors. Irs gov freefile state taxes   You may qualify for the exception described above if you meet all of the following requirements. Irs gov freefile state taxes You became a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen at birth. Irs gov freefile state taxes Neither of your parents was a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen at the time of your birth. Irs gov freefile state taxes You expatriated before you were 18½. Irs gov freefile state taxes You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation. Irs gov freefile state taxes Tax consequences of presence in the United States. Irs gov freefile state taxes   The following rules apply if you do not meet the exception above for dual-citizens and certain minors and the expatriation rules would otherwise apply to you. Irs gov freefile state taxes   The expatriation tax does not apply to any tax year during the 10-year period if you are physically present in the United States for more than 30 days during the calendar year ending in that year. Irs gov freefile state taxes Instead, you are treated as a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen or resident and taxed on your worldwide income for that tax year. Irs gov freefile state taxes You must file Form 1040, 1040A, or 1040EZ and figure your tax as prescribed in the instructions for those forms. Irs gov freefile state taxes   When counting the number of days of presence during a calendar year, count any day you were physically present in the United States at any time during the day. Irs gov freefile state taxes However, do not count any days (up to a limit of 30 days) on which you performed personal services in the United States for an employer who is not related to you if either of the following apply. Irs gov freefile state taxes You have ties with other countries. Irs gov freefile state taxes You have ties with other countries if: You became (within a reasonable period after your expatriation or termination of residency) a citizen or resident of the country in which you, your spouse, or either of your parents were born, and You became fully liable for income tax in that country. Irs gov freefile state taxes You were physically present in the United States for 30 days or less during each year in the 10-year period ending on the date of expatriation or termination of residency. Irs gov freefile state taxes Do not count any day you were an exempt individual or were unable to leave the United States because of a medical condition that arose while you were in the United States. Irs gov freefile state taxes See Exempt individual and Medical condition in chapter 1 under Substantial Presence Test, but disregard the information about Form 8843. Irs gov freefile state taxes Related employer. Irs gov freefile state taxes   If your employer in the United States is any of the following, then your employer is related to you. Irs gov freefile state taxes You must count any days you performed services in the United States for that employer as days of presence in the United States. Irs gov freefile state taxes Members of your family. Irs gov freefile state taxes This includes only your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc. Irs gov freefile state taxes ), and lineal descendants (children, grandchildren, etc. Irs gov freefile state taxes ). Irs gov freefile state taxes A partnership in which you directly or indirectly own more than 50% of the capital interest or the profits interest. Irs gov freefile state taxes A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock. Irs gov freefile state taxes (See Publication 550, chapter 4, Constructive ownership of stock, for how to determine whether you directly or indirectly own outstanding stock. Irs gov freefile state taxes ) A tax-exempt charitable or educational organization that is directly or indirectly controlled, in any manner or by any method, by you or by a member of your family, whether or not this control is legally enforceable. Irs gov freefile state taxes Date of tax expatriation. Irs gov freefile state taxes   For purposes of U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax rules, the date of your expatriation or termination of residency is the later of the dates on which you perform the following actions. Irs gov freefile state taxes You notify either the Department of State or the Department of Homeland Security (whichever is appropriate) of your expatriating act or termination of residency. Irs gov freefile state taxes You file Form 8854 in accordance with the form instructions. Irs gov freefile state taxes Annual return. Irs gov freefile state taxes   If the expatriation tax applies to you, you must file Form 8854 each year during the 10-year period following the date of expatriation. Irs gov freefile state taxes You must file this form even if you owe no U. Irs gov freefile state taxes S. Irs gov freefile state taxes tax. Irs gov freefile state taxes Penalty. Irs gov freefile state taxes   If you fail to file Form 8854 for any tax year, fail to include all information required to be shown on the form, or include incorrect information, you may have to pay a penalty of $10,000. Irs gov freefile state taxes You will not have to pay a penalty if you show that the failure is due to reasonable cause and not to willful neglect. Irs gov freefile state taxes How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) If the expatriation tax applies to you, you are generally subject to tax on your U. Irs gov freefile state taxes S. Irs gov freefile state taxes source gross income and gains on a net basis at the graduated rates applicable to individuals (with allowable deductions) unless you would be subject to a higher tax under the 30% tax (discussed earlier) on income not connected with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes trade or business. Irs gov freefile state taxes For this purpose, U. Irs gov freefile state taxes S. Irs gov freefile state taxes source gross income (defined in chapter 2) includes gains from the sale or exchange of: Property (other than stock or debt obligations) located in the United States, Stock issued by a U. Irs gov freefile state taxes S. Irs gov freefile state taxes domestic corporation, and Debt obligations of U. Irs gov freefile state taxes S. Irs gov freefile state taxes persons or of the United States, a state or political subdivision thereof, or the District of Columbia. Irs gov freefile state taxes U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income also includes any income or gain derived from stock in certain controlled foreign corporations if you owned, or were considered to own, at any time during the 2-year period ending on the date of expatriation, more than 50% of: The total combined voting power of all classes of that corporation's stock, or The total value of the stock. Irs gov freefile state taxes The income or gain is considered U. Irs gov freefile state taxes S. Irs gov freefile state taxes source income only to the extent of your share of earnings and profits earned or accumulated before the date of expatriation and during the periods you met the ownership requirements discussed above. Irs gov freefile state taxes Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any gain is treated as U. Irs gov freefile state taxes S. Irs gov freefile state taxes source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19. Irs gov freefile state taxes Other information. Irs gov freefile state taxes   For more information on the expatriation tax provisions, including exceptions to the tax and special U. Irs gov freefile state taxes S. Irs gov freefile state taxes source rules, see section 877 of the Internal Revenue Code. Irs gov freefile state taxes Expatriation Tax Return If you expatriated or terminated your U. Irs gov freefile state taxes S. Irs gov freefile state taxes residency, or you are subject to the expatriation tax, you must file Form 8854, Initial and Annual Expatriation Statement. Irs gov freefile state taxes Attach it to Form 1040NR if you are required to file that form. Irs gov freefile state taxes If you are present in the United States following your expatriation and are subject to tax as a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen or resident, file Form 8854 with Form 1040. Irs gov freefile state taxes Expatriation After June 16, 2008 If you expatriated after June 16, 2008, the expatriation rules apply to you if you meet any of the following conditions. Irs gov freefile state taxes Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than: $139,000 if you expatriated or terminated residency in 2008. Irs gov freefile state taxes $145,000 if you expatriated or terminated residency in 2009 or 2010. Irs gov freefile state taxes $147,000 if you expatriated or terminated residency in 2011. Irs gov freefile state taxes $151,000 if you expatriated or terminated residency in 2012. Irs gov freefile state taxes $155,000 if you expatriated or terminated residency in 2013. Irs gov freefile state taxes Your net worth is $2 million or more on the date of your expatriation or termination of residency. Irs gov freefile state taxes You fail to certify on Form 8854 that you have complied with all U. Irs gov freefile state taxes S. Irs gov freefile state taxes federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency. Irs gov freefile state taxes Exception for dual-citizens and certain minors. Irs gov freefile state taxes   Certain dual-citizens and certain minors (defined next) are not subject to the expatriation tax even if they meet (1) or (2) above. Irs gov freefile state taxes However, they still must provide the certification required in (3) above. Irs gov freefile state taxes Certain dual-citizens. Irs gov freefile state taxes   You may qualify for the exception described above if both of the following apply. Irs gov freefile state taxes You became at birth a U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country. Irs gov freefile state taxes You have been a resident of the United States for not more than 10 years during the 15-year tax period ending with the tax year during which the expatriation occurs. Irs gov freefile state taxes For the purpose of determining U. Irs gov freefile state taxes S. Irs gov freefile state taxes residency, use the substantial presence test described in chapter 1. Irs gov freefile state taxes Certain minors. Irs gov freefile state taxes   You may qualify for the exception described earlier if you meet both of the following requirements. Irs gov freefile state taxes You expatriated before you were 18½. Irs gov freefile state taxes You have been a resident of the United States for not more than 10 tax years before the expatriation occurs. Irs gov freefile state taxes For the purpose of determining U. Irs gov freefile state taxes S. Irs gov freefile state taxes residency, use the substantial presence test described in chapter 1. Irs gov freefile state taxes Expatriation date. Irs gov freefile state taxes   Your expatriation date is the date you relinquish U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizenship (in the case of a former citizen) or terminate your long-term residency (in the case of a former U. Irs gov freefile state taxes S. Irs gov freefile state taxes resident). Irs gov freefile state taxes Former U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizen. Irs gov freefile state taxes   You are considered to have relinquished your U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizenship on the earliest of the following dates. Irs gov freefile state taxes The date you renounced U. Irs gov freefile state taxes S. Irs gov freefile state taxes citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality). Irs gov freefile state taxes The date you furnished to the State Department a signed statement of voluntary relinquishment of U. Irs gov freefile state taxes S. Irs gov freefile state taxes nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality). Irs gov freefile state taxes The date the State Department issued a certificate of loss of nationality. Irs gov freefile state taxes The date that a U. Irs gov freefile state taxes S. Irs gov freefile state taxes court canceled your certificate of naturalization. Irs gov freefile state taxes Former long-term resident. Irs gov freefile state taxes   You are considered to have terminated your long-term residency on the earliest of the following dates. Irs gov freefile state taxes The date you voluntarily relinquished your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U. Irs gov freefile state taxes S. Irs gov freefile state taxes consular or immigration officer, and the Department of Homeland Security determined that you have, in fact, abandoned your lawful permanent resident status. Irs gov freefile state taxes The date you became subject to a final administrative order for your removal from the United States under the Immigration and Nationality Act and you actually left the United States as a result of that order. Irs gov freefile state taxes If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you began to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and notify the IRS of that treatment on Forms 8833 and 8854. Irs gov freefile state taxes See Effect of Tax Treaties in chapter 1 for more information about dual residents. Irs gov freefile state taxes How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008) In the year you expatriate, you are subject to income tax on the net unrealized gain (or loss) in your property as if the property had been sold for its fair market value on the day before your expatriation date (“mark-to-market tax”). Irs gov freefile state taxes This applies to most types of property interests you held on the date of relinquishment of citizenship or termination of residency. Irs gov freefile state taxes But see Exceptions , later. Irs gov freefile state taxes Gains arising from deemed sales must be taken into account for the tax year of the deemed sale without regard to other U. Irs gov freefile state taxes S. Irs gov freefile state taxes internal revenue laws. Irs gov freefile state taxes Losses from deemed sales must be taken into account to the extent otherwise provided under U. Irs gov freefile state taxes S. Irs gov freefile state taxes internal revenue laws. Irs gov freefile state taxes However, Internal Revenue Code section 1091 (relating to the disallowance of losses on wash sales of stock and securities) does not apply. Irs gov freefile state taxes The net gain that you otherwise must include in your income is reduced (but not below zero) by: $600,000 if you expatriated or terminated residency before January 1, 2009. Irs gov freefile state taxes $626,000 if you expatriated or terminated residency in 2009. Irs gov freefile state taxes $627,000 if you expatriated or terminated residency in 2010. Irs gov freefile state taxes $636,000 if you expatriated or terminated residency in 2011. Irs gov freefile state taxes $651,000 if you expatriated or terminated residency in 2012. Irs gov freefile state taxes $668,000 if you expatriated or terminated residency in 2013. Irs gov freefile state taxes Exceptions. Irs gov freefile state taxes   The mark-to-market tax does not apply to the following. Irs gov freefile state taxes Eligible deferred compensation items. Irs gov freefile state taxes Ineligible deferred compensation items. Irs gov freefile state taxes Interests in nongrantor trusts. Irs gov freefile state taxes Specified tax deferred accounts. Irs gov freefile state taxes Instead, items (1) and (3) may be subject to withholding at source. Irs gov freefile state taxes In the case of item (2), you are treated as receiving the present value of your accrued benefit as of the day before the expatriation date. Irs gov freefile state taxes In the case of item (4), you are treated as receiving a distribution of your entire interest in the account on the day before your expatriation date. Irs gov freefile state taxes See paragraphs (d), (e), and (f) of section 877A for more information. Irs gov freefile state taxes Expatriation Tax Return If you expatriated or terminated your U. Irs gov freefile state taxes S. Irs gov freefile state taxes residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Irs gov freefile state taxes Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms. Irs gov freefile state taxes Deferral of payment of mark-to-market tax. Irs gov freefile state taxes   You can make an irrevocable election to defer payment of the mark-to-market tax imposed on the deemed sale of property. Irs gov freefile state taxes If you make this election, the following rules apply. Irs gov freefile state taxes You can make the election on a property-by-property basis. Irs gov freefile state taxes The deferred tax attributable to a particular property is due on the return for the tax year in which you dispose of the property. Irs gov freefile state taxes Interest is charged for the period the tax is deferred. Irs gov freefile state taxes The due date for the payment of the deferred tax cannot be extended beyond the earlier of the following dates. Irs gov freefile state taxes The due date of the return required for the year of death. Irs gov freefile state taxes The time that the security provided for the property fails to be adequate. Irs gov freefile state taxes See item (6) below. Irs gov freefile state taxes You make the election on Form 8854. Irs gov freefile state taxes You must provide adequate security (such as a bond). Irs gov freefile state taxes You must make an irrevocable waiver of any right under any treaty of the United States which would preclude assessment or collection of the mark-to-market tax. Irs gov freefile state taxes   For more information about the deferral of payment, see the Instructions for Form 8854. Irs gov freefile state taxes Prev  Up  Next   Home   More Online Publications