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Vita Free Tax Preparation

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Vita Free Tax Preparation

Vita free tax preparation 2. Vita free tax preparation   Withholding Tax Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Income Tax Withholding Statement. Vita free tax preparation 30% Flat Rate Withholding Social Security and Medicare TaxesGeneral Information Bilateral Social Security (Totalization) Agreements Topics - This chapter discusses: Withholding income tax from the pay of U. Vita free tax preparation S. Vita free tax preparation citizens, Withholding tax at a flat rate, and Social security and Medicare taxes. Vita free tax preparation Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 673 Statement For Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion Provided by Section 911 W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification See chapter 7 for information about getting this publication and these forms. Vita free tax preparation Income Tax Withholding U. Vita free tax preparation S. Vita free tax preparation employers generally must withhold U. Vita free tax preparation S. Vita free tax preparation income tax from the pay of U. Vita free tax preparation S. Vita free tax preparation citizens working abroad unless the employer is required by foreign law to withhold foreign income tax. Vita free tax preparation Foreign earned income exclusion. Vita free tax preparation   Your employer does not have to withhold U. Vita free tax preparation S. Vita free tax preparation income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion. Vita free tax preparation   Your employer should withhold taxes from any wages you earn for working in the United States. Vita free tax preparation Statement. Vita free tax preparation   You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion. Vita free tax preparation   Form 673 is an acceptable statement. Vita free tax preparation You can use Form 673 only if you are a U. Vita free tax preparation S. Vita free tax preparation citizen. Vita free tax preparation You do not have to use the form. Vita free tax preparation You can prepare your own statement. Vita free tax preparation See a copy of Form 673, later. Vita free tax preparation   Generally, your employer can stop the withholding once you submit the statement that includes a declaration that the statement is made under penalties of perjury. Vita free tax preparation However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold. Vita free tax preparation   In determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion, if your employer has any information about pay you received from any other source outside the United States, your employer must take that information into account. Vita free tax preparation Foreign tax credit. Vita free tax preparation   If you plan to take a foreign tax credit, you may be eligible for additional withholding allowances on Form W-4. Vita free tax preparation You can take these additional withholding allowances only for foreign tax credits attributable to taxable salary or wage income. Vita free tax preparation Withholding from pension payments. Vita free tax preparation   U. Vita free tax preparation S. Vita free tax preparation payers of benefits from employer-deferred compensation plans, individual retirement plans, and commercial annuities generally must withhold income tax from payments delivered outside of the United States. Vita free tax preparation You can choose exemption from withholding if you: Provide the payer of the benefits with a residence address in the United States or a U. Vita free tax preparation S. Vita free tax preparation possession, or Certify to the payer that you are not a U. Vita free tax preparation S. Vita free tax preparation citizen or resident alien or someone who left the United States to avoid tax. Vita free tax preparation Check your withholding. Vita free tax preparation   Before you report U. Vita free tax preparation S. Vita free tax preparation income tax withholding on your tax return, you should carefully review all information documents, such as Form W-2, Wage and Tax Statement, and the Form 1099 information returns. Vita free tax preparation Compare other records, such as final pay records or bank statements, with Form W-2 or Form 1099 to verify the withholding on these forms. Vita free tax preparation Check your U. Vita free tax preparation S. Vita free tax preparation income tax withholding even if you pay someone else to prepare your tax return. Vita free tax preparation You may be assessed penalties and interest if you claim more than your correct amount of withholding allowances. Vita free tax preparation This image is too large to be displayed in the current screen. Vita free tax preparation Please click the link to view the image. Vita free tax preparation Form 673 30% Flat Rate Withholding Generally, U. Vita free tax preparation S. Vita free tax preparation payers of income other than wages, such as dividends and royalties, are required to withhold tax at a flat 30% (or lower treaty) rate on nonwage income paid to nonresident aliens. Vita free tax preparation If you are a U. Vita free tax preparation S. Vita free tax preparation citizen or resident alien and this tax is withheld in error from payments to you because you have a foreign address, you should notify the payer of the income to stop the withholding. Vita free tax preparation Use Form W-9 to notify the payer. Vita free tax preparation You can claim the tax withheld in error as a withholding credit on your tax return if the amount is not adjusted by the payer. Vita free tax preparation Social security benefits paid to residents. Vita free tax preparation   If you are a lawful permanent resident (green card holder) and a flat 30% tax was withheld in error on your social security benefits, the tax is refundable by the Social Security Administration (SSA) or the IRS. Vita free tax preparation The SSA will refund the tax withheld if the refund can be processed during the same calendar year in which the tax was withheld. Vita free tax preparation If the SSA cannot refund the tax withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center at the address listed under Where To File to determine if you are entitled to a refund. Vita free tax preparation The following information must be submitted with your Form 1040 or Form 1040A. Vita free tax preparation A copy of Form SSA-1042S, Social Security Benefit Statement. Vita free tax preparation A copy of your “green card. Vita free tax preparation ” A signed declaration that includes the following statements. Vita free tax preparation   “I am a U. Vita free tax preparation S. Vita free tax preparation lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Vita free tax preparation I am filing a U. Vita free tax preparation S. Vita free tax preparation income tax return for the taxable year as a resident alien reporting all of my worldwide income. Vita free tax preparation I have not claimed benefits for the taxable year under an income tax treaty as a nonresident alien. Vita free tax preparation ” Social Security and Medicare Taxes Social security and Medicare taxes may apply to wages paid to an employee regardless of where the services are performed. Vita free tax preparation General Information In general, U. Vita free tax preparation S. Vita free tax preparation social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States unless one of the following exceptions applies. Vita free tax preparation You perform the services on or in connection with an American vessel or aircraft (defined later) and either: You entered into your employment contract within the United States, or The vessel or aircraft touches at a U. Vita free tax preparation S. Vita free tax preparation port while you are employed on it. Vita free tax preparation You are working in one of the countries with which the United States has entered into a bilateral social security agreement (discussed later). Vita free tax preparation You are working for an American employer (defined later). Vita free tax preparation You are working for a foreign affiliate (defined later) of an American employer under a voluntary agreement entered into between the American employer and the U. Vita free tax preparation S. Vita free tax preparation Treasury Department. Vita free tax preparation American vessel or aircraft. Vita free tax preparation   An American vessel is any vessel documented or numbered under the laws of the United States and any other vessel whose crew is employed solely by one or more U. Vita free tax preparation S. Vita free tax preparation citizens, residents, or corporations. Vita free tax preparation An American aircraft is an aircraft registered under the laws of the United States. Vita free tax preparation American employer. Vita free tax preparation   An American employer includes any of the following. Vita free tax preparation The U. Vita free tax preparation S. Vita free tax preparation Government or any of its instrumentalities. Vita free tax preparation An individual who is a resident of the United States. Vita free tax preparation A partnership of which at least two-thirds of the partners are U. Vita free tax preparation S. Vita free tax preparation residents. Vita free tax preparation A trust of which all the trustees are U. Vita free tax preparation S. Vita free tax preparation residents. Vita free tax preparation A corporation organized under the laws of the United States, any U. Vita free tax preparation S. Vita free tax preparation state, or the District of Columbia, Puerto Rico, the U. Vita free tax preparation S. Vita free tax preparation Virgin Islands, Guam, or American Samoa. Vita free tax preparation   An American employer also includes any foreign person with an employee who is performing services in connection with a contract between the U. Vita free tax preparation S. Vita free tax preparation government (or any instrumentality thereof) and a member of a domestically controlled group of entities which includes such foreign person. Vita free tax preparation Foreign affiliate. Vita free tax preparation   A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one or more entities. Vita free tax preparation For a corporation, the 10% interest must be in its voting stock. Vita free tax preparation For any other entity, the 10% interest must be in its profits. Vita free tax preparation   Form 2032, Contract Coverage Under Title II of the Social Security Act, is used by American employers to extend social security coverage to U. Vita free tax preparation S. Vita free tax preparation citizens and resident aliens working abroad for foreign affiliates of American employers. Vita free tax preparation Once you enter into an agreement, coverage cannot be terminated. Vita free tax preparation Excludable meals and lodging. Vita free tax preparation   Social security tax does not apply to the value of meals and lodging provided to you for the convenience of your employer if it is reasonable to believe that you will be able to exclude the value from your income. Vita free tax preparation Bilateral Social Security (Totalization) Agreements The United States has entered into agreements with some foreign countries to coordinate social security coverage and taxation of workers who are employed in those countries. Vita free tax preparation These agreements are commonly referred to as totalization agreements and are in effect with the following countries. Vita free tax preparation Australia Greece Norway Austria Ireland Poland Belgium Italy Portugal Canada Japan Spain Chile Korea, Sweden Czech South Switzerland Republic Luxembourg United Denmark Netherlands Kingdom Finland     France     Germany           Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Vita free tax preparation The agreements generally make sure that you pay social security taxes to only one country. Vita free tax preparation Generally, under these agreements, you will only be subject to social security taxes in the country where you are working. Vita free tax preparation However, if you are temporarily sent to work in a foreign country and your pay would otherwise be subject to social security taxes in both the United States and that country, you generally can remain covered only by U. Vita free tax preparation S. Vita free tax preparation social security. Vita free tax preparation You can get more information on any specific agreement by contacting: Social Security Administration Office of International Programs P. Vita free tax preparation O. Vita free tax preparation Box 17741 Baltimore, MD 21235-7741 If you have access to the Internet, you can get more information at: http://www. Vita free tax preparation socialsecurity. Vita free tax preparation gov/international. Vita free tax preparation Covered by U. Vita free tax preparation S. Vita free tax preparation only. Vita free tax preparation   If your pay in a foreign country is subject only to U. Vita free tax preparation S. Vita free tax preparation social security tax and is exempt from foreign social security tax, your employer should get a certificate of coverage from the Office of International Programs. Vita free tax preparation Covered by foreign country only. Vita free tax preparation   If you are permanently working in a foreign country with which the United States has a social security agreement and, under the agreement, your pay is exempt from U. Vita free tax preparation S. Vita free tax preparation social security tax, you or your employer should get a statement from the authorized official or agency of the foreign country verifying that your pay is subject to social security coverage in that country. Vita free tax preparation   If the authorities of the foreign country will not issue such a statement, either you or your employer should get a statement from the U. Vita free tax preparation S. Vita free tax preparation Social Security Administration, Office of International Programs, at the address listed earlier. Vita free tax preparation The statement should indicate that your wages are not covered by the U. Vita free tax preparation S. Vita free tax preparation social security system. Vita free tax preparation   This statement should be kept by your employer because it establishes that your pay is exempt from U. Vita free tax preparation S. Vita free tax preparation social security tax. Vita free tax preparation   Only wages paid on or after the effective date of the totalization agreement can be exempt from U. Vita free tax preparation S. Vita free tax preparation social security tax. Vita free tax preparation Prev  Up  Next   Home   More Online Publications
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The Vita Free Tax Preparation

Vita free tax preparation 15. Vita free tax preparation   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. Vita free tax preparation More information. Vita free tax preparation Special SituationsException for sales to related persons. Vita free tax preparation Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. Vita free tax preparation  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. Vita free tax preparation See Mortgage ending early under Points in chapter 23. Vita free tax preparation Introduction This chapter explains the tax rules that apply when you sell your main home. Vita free tax preparation In most cases, your main home is the one in which you live most of the time. Vita free tax preparation If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). Vita free tax preparation See Excluding the Gain , later. Vita free tax preparation Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. Vita free tax preparation If you have gain that cannot be excluded, it is taxable. Vita free tax preparation Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). Vita free tax preparation You may also have to complete Form 4797, Sales of Business Property. Vita free tax preparation See Reporting the Sale , later. Vita free tax preparation If you have a loss on the sale, you generally cannot deduct it on your return. Vita free tax preparation However, you may need to report it. Vita free tax preparation See Reporting the Sale , later. Vita free tax preparation The following are main topics in this chapter. Vita free tax preparation Figuring gain or loss. Vita free tax preparation Basis. Vita free tax preparation Excluding the gain. Vita free tax preparation Ownership and use tests. Vita free tax preparation Reporting the sale. Vita free tax preparation Other topics include the following. Vita free tax preparation Business use or rental of home. Vita free tax preparation Recapturing a federal mortgage subsidy. Vita free tax preparation Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. Vita free tax preparation ” 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. Vita free tax preparation To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Vita free tax preparation Land. Vita free tax preparation   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. Vita free tax preparation However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. Vita free tax preparation See Vacant land under Main Home in Publication 523 for more information. Vita free tax preparation Example. Vita free tax preparation You buy a piece of land and move your main home to it. Vita free tax preparation Then you sell the land on which your main home was located. Vita free tax preparation This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Vita free tax preparation More than one home. Vita free tax preparation   If you have more than one home, you can exclude gain only from the sale of your main home. Vita free tax preparation You must include in income gain from the sale of any other home. Vita free tax preparation If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. Vita free tax preparation Example 1. Vita free tax preparation You own two homes, one in New York and one in Florida. Vita free tax preparation 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. Vita free tax preparation In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Vita free tax preparation You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Vita free tax preparation Example 2. Vita free tax preparation You own a house, but you live in another house that you rent. Vita free tax preparation The rented house is your main home. Vita free tax preparation Example 3. Vita free tax preparation You own two homes, one in Virginia and one in New Hampshire. Vita free tax preparation In 2009 and 2010, you lived in the Virginia home. Vita free tax preparation In 2011 and 2012, you lived in the New Hampshire home. Vita free tax preparation In 2013, you lived again in the Virginia home. Vita free tax preparation Your main home in 2009, 2010, and 2013 is the Virginia home. Vita free tax preparation Your main home in 2011 and 2012 is the New Hampshire home. Vita free tax preparation You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Vita free tax preparation Property used partly as your main home. Vita free tax preparation   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. Vita free tax preparation For details, see Business Use or Rental of Home , later. Vita free tax preparation 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. Vita free tax preparation Subtract the adjusted basis from the amount realized to get your gain or loss. Vita free tax preparation     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. Vita free tax preparation 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. Vita free tax preparation Payment by employer. Vita free tax preparation   You may have to sell your home because of a job transfer. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation Option to buy. Vita free tax preparation   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. Vita free tax preparation If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Vita free tax preparation Report this amount on Form 1040, line 21. Vita free tax preparation Form 1099-S. Vita free tax preparation   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. Vita free tax preparation   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. Vita free tax preparation Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Vita free tax preparation Amount Realized The amount realized is the selling price minus selling expenses. Vita free tax preparation Selling expenses. Vita free tax preparation   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Vita free tax preparation ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Vita free tax preparation This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Vita free tax preparation For information on how to figure your home's adjusted basis, see Determining Basis , later. Vita free tax preparation Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Vita free tax preparation Gain on sale. Vita free tax preparation   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. Vita free tax preparation Loss on sale. Vita free tax preparation   If the amount realized is less than the adjusted basis, the difference is a loss. Vita free tax preparation A loss on the sale of your main home cannot be deducted. Vita free tax preparation Jointly owned home. Vita free tax preparation   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Vita free tax preparation Separate returns. Vita free tax preparation   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Vita free tax preparation Your ownership interest is generally determined by state law. Vita free tax preparation Joint owners not married. Vita free tax preparation   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. Vita free tax preparation Each of you applies the rules discussed in this chapter on an individual basis. Vita free tax preparation Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Vita free tax preparation Foreclosure or repossession. Vita free tax preparation   If your home was foreclosed on or repossessed, you have a disposition. Vita free tax preparation See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. Vita free tax preparation Abandonment. Vita free tax preparation   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Vita free tax preparation Trading (exchanging) homes. Vita free tax preparation   If you trade your old home for another home, treat the trade as a sale and a purchase. Vita free tax preparation Example. Vita free tax preparation You owned and lived in a home with an adjusted basis of $41,000. Vita free tax preparation 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. Vita free tax preparation This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). Vita free tax preparation 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). Vita free tax preparation Transfer to spouse. Vita free tax preparation   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. Vita free tax preparation This is true even if you receive cash or other consideration for the home. Vita free tax preparation As a result, the rules in this chapter do not apply. Vita free tax preparation More information. Vita free tax preparation   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. Vita free tax preparation Involuntary conversion. Vita free tax preparation   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. Vita free tax preparation 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 . Vita free tax preparation Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Vita free tax preparation Your basis in your home is determined by how you got the home. Vita free tax preparation Generally, your basis is its cost if you bought it or built it. Vita free tax preparation If you got it in some other way (inheritance, gift, etc. Vita free tax preparation ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Vita free tax preparation While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Vita free tax preparation 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. Vita free tax preparation See Adjusted Basis , later. Vita free tax preparation You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. Vita free tax preparation Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Vita free tax preparation Purchase. Vita free tax preparation   If you bought your home, your basis is its cost to you. Vita free tax preparation This includes the purchase price and certain settlement or closing costs. Vita free tax preparation 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. Vita free tax preparation If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. Vita free tax preparation Settlement fees or closing costs. Vita free tax preparation   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Vita free tax preparation 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. Vita free tax preparation 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). Vita free tax preparation    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. Vita free tax preparation It also lists some settlement costs that cannot be included in basis. Vita free tax preparation   Also see Publication 523 for additional items and a discussion of basis other than cost. Vita free tax preparation Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Vita free tax preparation To figure your adjusted basis, you can use Worksheet 1 in Publication 523. Vita free tax preparation Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Vita free tax preparation Increases to basis. Vita free tax preparation   These include the following. Vita free tax preparation Additions and other improvements that have a useful life of more than 1 year. Vita free tax preparation Special assessments for local improvements. Vita free tax preparation Amounts you spent after a casualty to restore damaged property. Vita free tax preparation Improvements. Vita free tax preparation   These add to the value of your home, prolong its useful life, or adapt it to new uses. Vita free tax preparation You add the cost of additions and other improvements to the basis of your property. Vita free tax preparation   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. Vita free tax preparation An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. Vita free tax preparation Repairs. Vita free tax preparation   These maintain your home in good condition but do not add to its value or prolong its life. Vita free tax preparation You do not add their cost to the basis of your property. Vita free tax preparation   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. Vita free tax preparation Decreases to basis. Vita free tax preparation   These include the following. Vita free tax preparation Discharge of qualified principal residence indebtedness that was excluded from income. Vita free tax preparation Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Vita free tax preparation For details, see Publication 4681. Vita free tax preparation Gain you postponed from the sale of a previous home before May 7, 1997. Vita free tax preparation Deductible casualty losses. Vita free tax preparation Insurance payments you received or expect to receive for casualty losses. Vita free tax preparation Payments you received for granting an easement or right-of-way. Vita free tax preparation Depreciation allowed or allowable if you used your home for business or rental purposes. Vita free tax preparation Energy-related credits allowed for expenditures made on the residence. Vita free tax preparation (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Vita free tax preparation ) Adoption credit you claimed for improvements added to the basis of your home. Vita free tax preparation Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). Vita free tax preparation General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. Vita free tax preparation Discharges of qualified principal residence indebtedness. Vita free tax preparation   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Vita free tax preparation This exclusion applies to discharges made after 2006 and before 2014. Vita free tax preparation If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. Vita free tax preparation   File Form 982 with your tax return. Vita free tax preparation See the form's instructions for detailed information. Vita free tax preparation Recordkeeping. Vita free tax preparation You should keep records to prove your home's adjusted basis. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation Keep records proving the basis of both homes as long as they are needed for tax purposes. Vita free tax preparation The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. Vita free tax preparation Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Vita free tax preparation 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. Vita free tax preparation To qualify, you must meet the ownership and use tests described later. Vita free tax preparation 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. Vita free tax preparation You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. Vita free tax preparation If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Vita free tax preparation See Publication 505, Tax Withholding and Estimated Tax. Vita free tax preparation 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. Vita free tax preparation You meet the ownership test. Vita free tax preparation You meet the use test. Vita free tax preparation During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Vita free tax preparation For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. Vita free tax preparation 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 . Vita free tax preparation Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Vita free tax preparation 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). Vita free tax preparation Exception. Vita free tax preparation   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. Vita free tax preparation However, the maximum amount you may be able to exclude will be reduced. Vita free tax preparation See Reduced Maximum Exclusion , later. Vita free tax preparation Example 1—home owned and occupied for at least 2 years. Vita free tax preparation Mya bought and moved into her main home in September 2011. Vita free tax preparation She sold the home at a gain in October 2013. Vita free tax preparation 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. Vita free tax preparation She meets the ownership and use tests. Vita free tax preparation Example 2—ownership test met but use test not met. Vita free tax preparation Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Vita free tax preparation He later sold the home for a gain. Vita free tax preparation He owned the home during the entire 5-year period ending on the date of sale. Vita free tax preparation He meets the ownership test but not the use test. Vita free tax preparation He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation Temporary absence. Vita free tax preparation   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. Vita free tax preparation The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Vita free tax preparation Example 1. Vita free tax preparation David Johnson, who is single, bought and moved into his home on February 1, 2011. Vita free tax preparation Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Vita free tax preparation David sold the house on March 1, 2013. Vita free tax preparation Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. Vita free tax preparation 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. Vita free tax preparation Example 2. Vita free tax preparation Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. Vita free tax preparation He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. Vita free tax preparation On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. Vita free tax preparation Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Vita free tax preparation He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. Vita free tax preparation Ownership and use tests met at different times. Vita free tax preparation   You can meet the ownership and use tests during different 2-year periods. Vita free tax preparation However, you must meet both tests during the 5-year period ending on the date of the sale. Vita free tax preparation Example. Vita free tax preparation Beginning in 2002, Helen Jones lived in a rented apartment. Vita free tax preparation The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Vita free tax preparation In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Vita free tax preparation On July 12, 2013, while still living in her daughter's home, she sold her condominium. Vita free tax preparation 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. Vita free tax preparation She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Vita free tax preparation She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Vita free tax preparation 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. Vita free tax preparation Cooperative apartment. Vita free tax preparation   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. Vita free tax preparation Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Vita free tax preparation Exception for individuals with a disability. Vita free tax preparation   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. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation Previous home destroyed or condemned. Vita free tax preparation   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. Vita free tax preparation This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. Vita free tax preparation 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. Vita free tax preparation Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Vita free tax preparation   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Vita free tax preparation You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. Vita free tax preparation 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. Vita free tax preparation   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. Vita free tax preparation For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. Vita free tax preparation 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. Vita free tax preparation (But see Special rules for joint returns , next. Vita free tax preparation ) Special rules for joint returns. Vita free tax preparation   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Vita free tax preparation You are married and file a joint return for the year. Vita free tax preparation Either you or your spouse meets the ownership test. Vita free tax preparation Both you and your spouse meet the use test. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Vita free tax preparation Example 1—one spouse sells a home. Vita free tax preparation Emily sells her home in June 2013 for a gain of $300,000. Vita free tax preparation She marries Jamie later in the year. Vita free tax preparation She meets the ownership and use tests, but Jamie does not. Vita free tax preparation Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Vita free tax preparation The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Vita free tax preparation Example 2—each spouse sells a home. Vita free tax preparation 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. Vita free tax preparation He meets the ownership and use tests on his home, but Emily does not. Vita free tax preparation Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Vita free tax preparation However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Vita free tax preparation Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Vita free tax preparation 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. Vita free tax preparation Sale of main home by surviving spouse. Vita free tax preparation   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. Vita free tax preparation   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. Vita free tax preparation The sale or exchange took place after 2008. Vita free tax preparation The sale or exchange took place no more than 2 years after the date of death of your spouse. Vita free tax preparation You have not remarried. Vita free tax preparation You and your spouse met the use test at the time of your spouse's death. Vita free tax preparation You or your spouse met the ownership test at the time of your spouse's death. Vita free tax preparation Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. Vita free tax preparation Example. Vita free tax preparation   Harry owned and used a house as his main home since 2009. Vita free tax preparation Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. Vita free tax preparation Harry died on August 15, 2013, and Wilma inherited the property. Vita free tax preparation Wilma sold the property on September 3, 2013, at which time she had not remarried. Vita free tax preparation 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. Vita free tax preparation Home transferred from spouse. Vita free tax preparation   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. Vita free tax preparation Use of home after divorce. Vita free tax preparation   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. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Vita free tax preparation A change in place of employment. Vita free tax preparation Health. Vita free tax preparation Unforeseen circumstances. Vita free tax preparation Unforeseen circumstances. Vita free tax preparation   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. Vita free tax preparation   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. Vita free tax preparation 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. Vita free tax preparation But you must meet the ownership and use tests. Vita free tax preparation Periods of nonqualified use. Vita free tax preparation   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. Vita free tax preparation Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. Vita free tax preparation Exceptions. Vita free tax preparation   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. Vita free tax preparation The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. Vita free tax preparation Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. Vita free tax preparation Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. Vita free tax preparation Calculation. Vita free tax preparation   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. Vita free tax preparation Example 1. Vita free tax preparation On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Vita free tax preparation 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. Vita free tax preparation The house was rented from June 1, 2009, to March 31, 2011. Vita free tax preparation Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Vita free tax preparation 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. Vita free tax preparation 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. Vita free tax preparation Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. Vita free tax preparation Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. Vita free tax preparation 321. Vita free tax preparation To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. Vita free tax preparation 321. Vita free tax preparation Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. Vita free tax preparation Example 2. Vita free tax preparation William owned and used a house as his main home from 2007 through 2010. Vita free tax preparation On January 1, 2011, he moved to another state. Vita free tax preparation He rented his house from that date until April 30, 2013, when he sold it. Vita free tax preparation 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. Vita free tax preparation He must report the sale on Form 4797 because it was rental property at the time of sale. Vita free tax preparation 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. Vita free tax preparation Because he met the ownership and use tests, he can exclude gain up to $250,000. Vita free tax preparation 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. Vita free tax preparation Depreciation after May 6, 1997. Vita free tax preparation   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. Vita free tax preparation 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. Vita free tax preparation See Publication 544 for more information. Vita free tax preparation Property used partly for business or rental. Vita free tax preparation   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. Vita free tax preparation Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. Vita free tax preparation If any of these conditions apply, report the entire gain or loss. Vita free tax preparation For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. Vita free tax preparation If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). Vita free tax preparation See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. Vita free tax preparation Installment sale. Vita free tax preparation    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. Vita free tax preparation These sales are called “installment sales. Vita free tax preparation ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. Vita free tax preparation You may be able to report the part of the gain you cannot exclude on the installment basis. Vita free tax preparation    Use Form 6252, Installment Sale Income, to report the sale. Vita free tax preparation Enter your exclusion on line 15 of Form 6252. Vita free tax preparation Seller-financed mortgage. Vita free tax preparation   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. Vita free tax preparation You must separately report as interest income the interest you receive as part of each payment. Vita free tax preparation If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). Vita free tax preparation The buyer must give you his or her SSN, and you must give the buyer your SSN. Vita free tax preparation Failure to meet these requirements may result in a $50 penalty for each failure. Vita free tax preparation If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. Vita free tax preparation More information. Vita free tax preparation   For more information on installment sales, see Publication 537, Installment Sales. Vita free tax preparation Special Situations The situations that follow may affect your exclusion. Vita free tax preparation Sale of home acquired in a like-kind exchange. Vita free tax preparation   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. Vita free tax preparation Gain from a like-kind exchange is not taxable at the time of the exchange. Vita free tax preparation This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. Vita free tax preparation To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. Vita free tax preparation For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. Vita free tax preparation Home relinquished in a like-kind exchange. Vita free tax preparation   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. Vita free tax preparation Expatriates. Vita free tax preparation   You cannot claim the exclusion if the expatriation tax applies to you. Vita free tax preparation The expatriation tax applies to certain U. Vita free tax preparation S. Vita free tax preparation citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). Vita free tax preparation For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. Vita free tax preparation S. Vita free tax preparation Tax Guide for Aliens. Vita free tax preparation Home destroyed or condemned. Vita free tax preparation   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. Vita free tax preparation   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. Vita free tax preparation Sale of remainder interest. Vita free tax preparation   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. Vita free tax preparation If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. Vita free tax preparation Exception for sales to related persons. Vita free tax preparation   You cannot exclude gain from the sale of a remainder interest in your home to a related person. Vita free tax preparation Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. Vita free tax preparation ), and lineal descendants (children, grandchildren, etc. Vita free tax preparation ). Vita free tax preparation Related persons also include certain corporations, partnerships, trusts, and exempt organizations. Vita free tax preparation Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. Vita free tax preparation You recapture the benefit by increasing your federal income tax for the year of the sale. Vita free tax preparation You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. Vita free tax preparation Loans subject to recapture rules. Vita free tax preparation   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. Vita free tax preparation The recapture also applies to assumptions of these loans. Vita free tax preparation When recapture applies. Vita free tax preparation   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. Vita free tax preparation You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. Vita free tax preparation Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). Vita free tax preparation When recapture does not apply. Vita free tax preparation   Recapture does not apply in any of the following situations. Vita free tax preparation Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. Vita free tax preparation Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. Vita free tax preparation For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. Vita free tax preparation Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. Vita free tax preparation The home is disposed of as a result of your death. Vita free tax preparation You dispose of the home more than 9 years after the date you closed your mortgage loan. Vita free tax preparation You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. Vita free tax preparation You dispose of the home at a loss. Vita free tax preparation Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. Vita free tax preparation The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. Vita free tax preparation For more information, see Replacement Period in Publication 547. Vita free tax preparation You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). Vita free tax preparation Notice of amounts. Vita free tax preparation   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. Vita free tax preparation How to figure and report the recapture. Vita free tax preparation    The recapture tax is figured on Form 8828. Vita free tax preparation If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. Vita free tax preparation Attach Form 8828 to your Form 1040. Vita free tax preparation For more information, see Form 8828 and its instructions. Vita free tax preparation Prev  Up  Next   Home   More Online Publications