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2011 Tax Forms Ez

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2011 Tax Forms Ez

2011 tax forms ez Publication 969 - Main Content Table of Contents Health Savings Accounts (HSAs)Qualifying for an HSA Contributions to an HSA Distributions From an HSA Balance in an HSA Death of HSA Holder Filing Form 8889 Employer Participation Medical Savings Accounts (MSAs)Archer MSAs Contributions to an MSA Distributions From an MSA Balance in an Archer MSA Death of the Archer MSA Holder Filing Form 8853 Employer Participation Medicare Advantage MSAs Flexible Spending Arrangements (FSAs)Qualifying for an FSA Contributions to an FSA Distributions From an FSA Balance in an FSA Employer Participation Health Reimbursement Arrangements (HRAs)Qualifying for an HRA Contributions to an HRA Distributions From an HRA Balance in an HRA Employer Participation How To Get Tax HelpLow Income Taxpayer Clinics Health Savings Accounts (HSAs) A health savings account (HSA) is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. 2011 tax forms ez You must be an eligible individual to qualify for an HSA. 2011 tax forms ez No permission or authorization from the IRS is necessary to establish an HSA. 2011 tax forms ez You set up an HSA with a trustee. 2011 tax forms ez A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. 2011 tax forms ez The HSA can be established through a trustee that is different from your health plan provider. 2011 tax forms ez Your employer may already have some information on HSA trustees in your area. 2011 tax forms ez If you have an Archer MSA, you can generally roll it over into an HSA tax free. 2011 tax forms ez See Rollovers, later. 2011 tax forms ez What are the benefits of an HSA?   You may enjoy several benefits from having an HSA. 2011 tax forms ez You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040. 2011 tax forms ez Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income. 2011 tax forms ez The contributions remain in your account until you use them. 2011 tax forms ez The interest or other earnings on the assets in the account are tax free. 2011 tax forms ez Distributions may be tax free if you pay qualified medical expenses. 2011 tax forms ez See Qualified medical expenses , later. 2011 tax forms ez An HSA is “portable. 2011 tax forms ez ” It stays with you if you change employers or leave the work force. 2011 tax forms ez Qualifying for an HSA To be an eligible individual and qualify for an HSA, you must meet the following requirements. 2011 tax forms ez You must be covered under a high deductible health plan (HDHP), described later, on the first day of the month. 2011 tax forms ez You have no other health coverage except what is permitted under Other health coverage , later. 2011 tax forms ez You are not enrolled in Medicare. 2011 tax forms ez You cannot be claimed as a dependent on someone else's 2013 tax return. 2011 tax forms ez Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). 2011 tax forms ez If you meet these requirements, you are an eligible individual even if your spouse has non-HDHP family coverage, provided your spouse's coverage does not cover you. 2011 tax forms ez If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an HSA contribution. 2011 tax forms ez This is true even if the other person does not actually claim your exemption. 2011 tax forms ez Each spouse who is an eligible individual who wants an HSA must open a separate HSA. 2011 tax forms ez You cannot have a joint HSA. 2011 tax forms ez High deductible health plan (HDHP). 2011 tax forms ez   An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. 2011 tax forms ez Out-of-pocket expenses include copayments and other amounts, but do not include premiums. 2011 tax forms ez   An HDHP may provide preventive care benefits without a deductible or with a deductible less than the minimum annual deductible. 2011 tax forms ez Preventive care includes, but is not limited to, the following. 2011 tax forms ez Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. 2011 tax forms ez Routine prenatal and well-child care. 2011 tax forms ez Child and adult immunizations. 2011 tax forms ez Tobacco cessation programs. 2011 tax forms ez Obesity weight-loss programs. 2011 tax forms ez Screening services. 2011 tax forms ez This includes screening services for the following: Cancer. 2011 tax forms ez Heart and vascular diseases. 2011 tax forms ez Infectious diseases. 2011 tax forms ez Mental health conditions. 2011 tax forms ez Substance abuse. 2011 tax forms ez Metabolic, nutritional, and endocrine conditions. 2011 tax forms ez Musculoskeletal disorders. 2011 tax forms ez Obstetric and gynecological conditions. 2011 tax forms ez Pediatric conditions. 2011 tax forms ez Vision and hearing disorders. 2011 tax forms ez For more information on screening services, see Notice 2004-23, 2004-15 I. 2011 tax forms ez R. 2011 tax forms ez B. 2011 tax forms ez 725 available at www. 2011 tax forms ez irs. 2011 tax forms ez gov/irb/2004-15_IRB/ar10. 2011 tax forms ez html. 2011 tax forms ez     The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2013. 2011 tax forms ez      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,250 $12,500 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. 2011 tax forms ez Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. 2011 tax forms ez    The following table shows the minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs for 2014. 2011 tax forms ez      Self-only coverage Family coverage Minimum annual deductible $1,250 $2,500 Maximum annual deductible and other out-of-pocket expenses* $6,350 $12,700 * This limit does not apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. 2011 tax forms ez Instead, only deductibles and out-of-pocket expenses for services within the network should be used to figure whether the limit applies. 2011 tax forms ez   Self-only HDHP coverage is an HDHP covering only an eligible individual. 2011 tax forms ez Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual (whether or not that individual is an eligible individual). 2011 tax forms ez Example. 2011 tax forms ez An eligible individual and his dependent child are covered under an “employee plus one” HDHP offered by the individual's employer. 2011 tax forms ez This is family HDHP coverage. 2011 tax forms ez Family plans that do not meet the high deductible rules. 2011 tax forms ez   There are some family plans that have deductibles for both the family as a whole and for individual family members. 2011 tax forms ez Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. 2011 tax forms ez If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. 2011 tax forms ez Example. 2011 tax forms ez You have family health insurance coverage in 2013. 2011 tax forms ez The annual deductible for the family plan is $3,500. 2011 tax forms ez This plan also has an individual deductible of $1,500 for each family member. 2011 tax forms ez The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($2,500) for family coverage. 2011 tax forms ez Other health coverage. 2011 tax forms ez   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. 2011 tax forms ez However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. 2011 tax forms ez    You can have additional insurance that provides benefits only for the following items. 2011 tax forms ez Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property. 2011 tax forms ez A specific disease or illness. 2011 tax forms ez A fixed amount per day (or other period) of hospitalization. 2011 tax forms ez   You can also have coverage (whether provided through insurance or otherwise) for the following items. 2011 tax forms ez Accidents. 2011 tax forms ez Disability. 2011 tax forms ez Dental care. 2011 tax forms ez Vision care. 2011 tax forms ez Long-term care. 2011 tax forms ez    Plans in which substantially all of the coverage is through the items listed earlier are not HDHPs. 2011 tax forms ez For example, if your plan provides coverage substantially all of which is for a specific disease or illness, the plan is not an HDHP for purposes of establishing an HSA. 2011 tax forms ez Prescription drug plans. 2011 tax forms ez   You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan does not provide benefits until the minimum annual deductible of the HDHP has been met. 2011 tax forms ez If you can receive benefits before that deductible is met, you are not an eligible individual. 2011 tax forms ez Other employee health plans. 2011 tax forms ez   An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. 2011 tax forms ez Health FSAs and HRAs are discussed later. 2011 tax forms ez   However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements. 2011 tax forms ez Limited-purpose health FSA or HRA. 2011 tax forms ez These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. 2011 tax forms ez Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible. 2011 tax forms ez Suspended HRA. 2011 tax forms ez Before the beginning of an HRA coverage period, you can elect to suspend the HRA. 2011 tax forms ez The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. 2011 tax forms ez When the suspension period ends, you are no longer eligible to make contributions to an HSA. 2011 tax forms ez Post-deductible health FSA or HRA. 2011 tax forms ez These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. 2011 tax forms ez The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met. 2011 tax forms ez Retirement HRA. 2011 tax forms ez This arrangement pays or reimburses only those medical expenses incurred after retirement. 2011 tax forms ez After retirement you are no longer eligible to make contributions to an HSA. 2011 tax forms ez Health FSA – grace period. 2011 tax forms ez   Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero. 2011 tax forms ez See Flexible Spending Arrangements (FSAs) , later. 2011 tax forms ez Contributions to an HSA Any eligible individual can contribute to an HSA. 2011 tax forms ez For an employee's HSA, the employee, the employee's employer, or both may contribute to the employee's HSA in the same year. 2011 tax forms ez For an HSA established by a self-employed (or unemployed) individual, the individual can contribute. 2011 tax forms ez Family members or any other person may also make contributions on behalf of an eligible individual. 2011 tax forms ez Contributions to an HSA must be made in cash. 2011 tax forms ez Contributions of stock or property are not allowed. 2011 tax forms ez Limit on Contributions The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. 2011 tax forms ez For 2013, if you have self-only HDHP coverage, you can contribute up to $3,250. 2011 tax forms ez If you have family HDHP coverage, you can contribute up to $6,450. 2011 tax forms ez For 2014, if you have self-only HDHP coverage, you can contribute up to $3,300. 2011 tax forms ez If you have family HDHP coverage you can contribute up to $6,550. 2011 tax forms ez If you were, or were considered (under the last-month rule, discussed later), an eligible individual for the entire year and did not change your type of coverage, you can contribute the full amount based on your type of coverage. 2011 tax forms ez However, if you were not an eligible individual for the entire year or changed your coverage during the year, your contribution limit is the greater of: The limitation shown on the Line 3 Limitation Chart and Worksheetin the Instructions for Form 8889, Health Savings Accounts (HSAs), or The maximum annual HSA contribution based on your HDHP coverage (self-only or family) on the first day of the last month of your tax year. 2011 tax forms ez If you had family HDHP coverage on the first day of the last month of your tax year, your contribution limit for 2013 is $6,450 even if you changed coverage during the year. 2011 tax forms ez Last-month rule. 2011 tax forms ez   Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. 2011 tax forms ez You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. 2011 tax forms ez Testing period. 2011 tax forms ez   If contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. 2011 tax forms ez For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. 2011 tax forms ez For example, December 1, 2013, through December 31, 2014. 2011 tax forms ez   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the total contributions made to your HSA that would not have been made except for the last-month rule. 2011 tax forms ez You include this amount in your income in the year in which you fail to be an eligible individual. 2011 tax forms ez This amount is also subject to a 10% additional tax. 2011 tax forms ez The income and additional tax are shown on Form 8889, Part III. 2011 tax forms ez Example 1. 2011 tax forms ez Chris, age 53, becomes an eligible individual on December 1, 2013. 2011 tax forms ez He has family HDHP coverage on that date. 2011 tax forms ez Under the last-month rule, he contributes $6,450 to his HSA. 2011 tax forms ez Chris fails to be an eligible individual in June 2014. 2011 tax forms ez Because Chris did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), he must include in his 2014 income the contributions made in 2013 that would not have been made except for the last-month rule. 2011 tax forms ez Chris uses the worksheet in the Form 8889 instructions to determine this amount. 2011 tax forms ez January -0- February -0- March -0- April -0- May -0- June -0- July -0- August -0- September -0- October -0- November -0- December $6,450. 2011 tax forms ez 00 Total for all months $6,450. 2011 tax forms ez 00 Limitation. 2011 tax forms ez Divide the total by 12 $537. 2011 tax forms ez 50 Chris would include $5,912. 2011 tax forms ez 50 ($6,450. 2011 tax forms ez 00 – $537. 2011 tax forms ez 50) in his gross income on his 2014 tax return. 2011 tax forms ez Also, a 10% additional tax applies to this amount. 2011 tax forms ez Example 2. 2011 tax forms ez Erika, age 39, has self-only HDHP coverage on January 1, 2013. 2011 tax forms ez Erika changes to family HDHP coverage on November 1, 2013. 2011 tax forms ez Because Erika has family HDHP coverage on December 1, 2013, she contributes $6,450 for 2013. 2011 tax forms ez Erika fails to be an eligible individual in March 2014. 2011 tax forms ez Because she did not remain an eligible individual during the testing period (December 1, 2013, through December 31, 2014), she must include in income the contribution made that would not have been made except for the last-month rule. 2011 tax forms ez Erika uses the worksheet in the Form 8889 instructions to determine this amount. 2011 tax forms ez January $3,250. 2011 tax forms ez 00 February $3,250. 2011 tax forms ez 00 March $3,250. 2011 tax forms ez 00 April $3,250. 2011 tax forms ez 00 May $3,250. 2011 tax forms ez 00 June $3,250. 2011 tax forms ez 00 July $3,250. 2011 tax forms ez 00 August $3,250. 2011 tax forms ez 00 September $3,250. 2011 tax forms ez 00 October $3,250. 2011 tax forms ez 00 November $6,450. 2011 tax forms ez 00 December $6,450. 2011 tax forms ez 00 Total for all months $45,400. 2011 tax forms ez 00 Limitation. 2011 tax forms ez Divide the total by 12 $3,783. 2011 tax forms ez 34 Erika would include $2,666. 2011 tax forms ez 67 ($6,450 – $3,783. 2011 tax forms ez 34) in her gross income on her 2014 tax return. 2011 tax forms ez Also, a 10% additional tax applies to this amount. 2011 tax forms ez Additional contribution. 2011 tax forms ez   If you are an eligible individual who is age 55 or older at the end of your tax year, your contribution limit is increased by $1,000. 2011 tax forms ez For example, if you have self-only coverage, you can contribute up to $4,250 (the contribution limit for self-only coverage ($3,250) plus the additional contribution of $1,000). 2011 tax forms ez However, see Enrolled in Medicare , later. 2011 tax forms ez If you have more than one HSA in 2013, your total contributions to all the HSAs cannot be more than the limits discussed earlier. 2011 tax forms ez Reduction of contribution limit. 2011 tax forms ez   You must reduce the amount that can be contributed (including any additional contribution) to your HSA by the amount of any contribution made to your Archer MSA (including employer contributions) for the year. 2011 tax forms ez A special rule applies to married people, discussed next, if each spouse has family coverage under an HDHP. 2011 tax forms ez Rules for married people. 2011 tax forms ez   If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. 2011 tax forms ez If each spouse has family coverage under a separate plan, the contribution limit for 2013 is $6,450. 2011 tax forms ez You must reduce the limit on contributions, before taking into account any additional contributions, by the amount contributed to both spouses' Archer MSAs. 2011 tax forms ez After that reduction, the contribution limit is split equally between the spouses unless you agree on a different division. 2011 tax forms ez The rules for married people apply only if both spouses are eligible individuals. 2011 tax forms ez If both spouses are 55 or older and not enrolled in Medicare, each spouse's contribution limit is increased by the additional contribution. 2011 tax forms ez If both spouses meet the age requirement, the total contributions under family coverage cannot be more than $8,450. 2011 tax forms ez Each spouse must make the additional contribution to his or her own HSA. 2011 tax forms ez Example. 2011 tax forms ez For 2013, Mr. 2011 tax forms ez Auburn and his wife are both eligible individuals. 2011 tax forms ez They each have family coverage under separate HDHPs. 2011 tax forms ez Mr. 2011 tax forms ez Auburn is 58 years old and Mrs. 2011 tax forms ez Auburn is 53. 2011 tax forms ez Mr. 2011 tax forms ez and Mrs. 2011 tax forms ez Auburn can split the family contribution limit ($6,450) equally or they can agree on a different division. 2011 tax forms ez If they split it equally, Mr. 2011 tax forms ez Auburn can contribute $4,225 to an HSA (one-half the maximum contribution for family coverage ($3,225) + $1,000 additional contribution) and Mrs. 2011 tax forms ez Auburn can contribute $3,225 to an HSA. 2011 tax forms ez Employer contributions. 2011 tax forms ez   You must reduce the amount you, or any other person, can contribute to your HSA by the amount of any contributions made by your employer that are excludable from your income. 2011 tax forms ez This includes amounts contributed to your account by your employer through a cafeteria plan. 2011 tax forms ez Enrolled in Medicare. 2011 tax forms ez   Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. 2011 tax forms ez Example. 2011 tax forms ez You turned age 65 in July 2013 and enrolled in Medicare. 2011 tax forms ez You had an HDHP with self-only coverage and are eligible for an additional contribution of $1,000. 2011 tax forms ez Your contribution limit is $2,125 ($4,250 × 6 ÷ 12). 2011 tax forms ez Qualified HSA funding distribution. 2011 tax forms ez   A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. 2011 tax forms ez This distribution cannot be made from an ongoing SEP IRA or SIMPLE IRA. 2011 tax forms ez For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within your tax year in which the distribution would be made. 2011 tax forms ez   The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. 2011 tax forms ez The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. 2011 tax forms ez The distribution is not included in your income, is not deductible, and reduces the amount that can be contributed to your HSA. 2011 tax forms ez The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made. 2011 tax forms ez   You can make only one qualified HSA funding distribution during your lifetime. 2011 tax forms ez However, if you make a distribution during a month when you have self-only HDHP coverage, you can make another qualified HSA funding distribution in a later month in that tax year if you change to family HDHP coverage. 2011 tax forms ez The total qualified HSA funding distribution cannot be more than the contribution limit for family HDHP coverage plus any additional contribution to which you are entitled. 2011 tax forms ez Example. 2011 tax forms ez In 2013, you are an eligible individual, age 57, with self-only HDHP coverage. 2011 tax forms ez You can make a qualified HSA funding distribution of $4,250 ($3,250 plus $1,000 additional contribution). 2011 tax forms ez Funding distribution – testing period. 2011 tax forms ez   You must remain an eligible individual during the testing period. 2011 tax forms ez For a qualified HSA funding distribution, the testing period begins with the month in which the qualified HSA funding distribution is contributed and ends on the last day of the 12th month following that month. 2011 tax forms ez For example, if a qualified HSA funding distribution is contributed to your HSA on August 10, 2013, your testing period begins in August 2013, and ends on August 31, 2014. 2011 tax forms ez   If you fail to remain an eligible individual during the testing period, other than because of death or becoming disabled, you will have to include in income the qualified HSA funding distribution. 2011 tax forms ez You include this amount in income in the year in which you fail to be an eligible individual. 2011 tax forms ez This amount is also subject to a 10% additional tax. 2011 tax forms ez The income and the additional tax are shown on Form 8889, Part III. 2011 tax forms ez   Each qualified HSA funding distribution allowed has its own testing period. 2011 tax forms ez For example, you are an eligible individual, age 45, with self-only HDHP coverage. 2011 tax forms ez On June 18, 2013, you make a qualified HSA funding distribution of $3,250. 2011 tax forms ez On July 27, 2013, you enroll in family HDHP coverage and on August 17, 2013, you make a qualified HSA funding distribution of $3,200. 2011 tax forms ez Your testing period for the first distribution begins in June 2013 and ends on June 30, 2014. 2011 tax forms ez Your testing period for the second distribution begins in August 2013 and ends on August 31, 2014. 2011 tax forms ez   The testing period rule that applies under the last-month rule (discussed earlier) does not apply to amounts contributed to an HSA through a qualified HSA funding distribution. 2011 tax forms ez If you remain an eligible individual during the entire funding distribution testing period, then no amount of that distribution is included in income and will not be subject to the additional tax for failing to meet the last-month rule testing period. 2011 tax forms ez Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. 2011 tax forms ez Archer MSAs and other HSAs. 2011 tax forms ez   You can roll over amounts from Archer MSAs and other HSAs into an HSA. 2011 tax forms ez You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. 2011 tax forms ez Rollover contributions do not need to be in cash. 2011 tax forms ez Rollovers are not subject to the annual contribution limits. 2011 tax forms ez   You must roll over the amount within 60 days after the date of receipt. 2011 tax forms ez You can make only one rollover contribution to an HSA during a 1-year period. 2011 tax forms ez Note. 2011 tax forms ez If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer is not considered a rollover. 2011 tax forms ez There is no limit on the number of these transfers. 2011 tax forms ez Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889. 2011 tax forms ez When To Contribute You can make contributions to your HSA for 2013 until April 15, 2014. 2011 tax forms ez If you fail to be an eligible individual during 2013, you can still make contributions, up until April 15, 2014, for the months you were an eligible individual. 2011 tax forms ez Your employer can make contributions to your HSA between January 1, 2014, and April 15, 2014, that are allocated to 2013. 2011 tax forms ez Your employer must notify you and the trustee of your HSA that the contribution is for 2013. 2011 tax forms ez The contribution will be reported on your 2014 Form W-2. 2011 tax forms ez Reporting Contributions on Your Return Contributions made by your employer are not included in your income. 2011 tax forms ez Contributions to an employee's account by an employer using the amount of an employee's salary reduction through a cafeteria plan are treated as employer contributions. 2011 tax forms ez Generally, you can claim contributions you made and contributions made by any other person, other than your employer, on your behalf, as an adjustment to income. 2011 tax forms ez Contributions by a partnership to a bona fide partner's HSA are not contributions by an employer. 2011 tax forms ez The contributions are treated as a distribution of money and are not included in the partner's gross income. 2011 tax forms ez Contributions by a partnership to a partner's HSA for services rendered are treated as guaranteed payments that are deductible by the partnership and includible in the partner's gross income. 2011 tax forms ez In both situations, the partner can deduct the contribution made to the partner's HSA. 2011 tax forms ez Contributions by an S corporation to a 2% shareholder-employee's HSA for services rendered are treated as guaranteed payments and are deductible by the S corporation and includible in the shareholder-employee's gross income. 2011 tax forms ez The shareholder-employee can deduct the contribution made to the shareholder-employee's HSA. 2011 tax forms ez Form 8889. 2011 tax forms ez   Report all contributions to your HSA on Form 8889 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez You should include all contributions made for 2013, including those made by April 15, 2014, that are designated for 2013. 2011 tax forms ez Contributions made by your employer and qualified HSA funding distributions are also shown on the form. 2011 tax forms ez   You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount contributed to your HSA during the year. 2011 tax forms ez Your employer's contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W. 2011 tax forms ez Follow the instructions for Form 8889. 2011 tax forms ez Report your HSA deduction on Form 1040 or Form 1040NR. 2011 tax forms ez Excess contributions. 2011 tax forms ez   You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. 2011 tax forms ez Excess contributions are not deductible. 2011 tax forms ez Excess contributions made by your employer are included in your gross income. 2011 tax forms ez If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. 2011 tax forms ez   Generally, you must pay a 6% excise tax on excess contributions. 2011 tax forms ez See Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. 2011 tax forms ez The excise tax applies to each tax year the excess contribution remains in the account. 2011 tax forms ez   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. 2011 tax forms ez You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made. 2011 tax forms ez You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. 2011 tax forms ez If you fail to remain an eligible individual during any of the testing periods, discussed earlier, the amount you have to include in income is not an excess contribution. 2011 tax forms ez If you withdraw any of those amounts, the amount is treated the same as any other distribution from an HSA, discussed later. 2011 tax forms ez Deducting an excess contribution in a later year. 2011 tax forms ez   You may be able to deduct excess contributions for previous years that are still in your HSA. 2011 tax forms ez The excess contribution you can deduct for the current year is the lesser of the following two amounts. 2011 tax forms ez Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year. 2011 tax forms ez The total excess contributions in your HSA at the beginning of the year. 2011 tax forms ez   Amounts contributed for the year include contributions by you, your employer, and any other person. 2011 tax forms ez They also include any qualified HSA funding distribution made to your HSA. 2011 tax forms ez Any excess contribution remaining at the end of a tax year is subject to the excise tax. 2011 tax forms ez See Form 5329. 2011 tax forms ez Distributions From an HSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. 2011 tax forms ez When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA. 2011 tax forms ez You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. 2011 tax forms ez If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. 2011 tax forms ez You do not have to make distributions from your HSA each year. 2011 tax forms ez If you are no longer an eligible individual, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. 2011 tax forms ez Generally, a distribution is money you get from your health savings account. 2011 tax forms ez Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn from the HSA by other individuals that you have designated. 2011 tax forms ez The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. 2011 tax forms ez Qualified medical expenses. 2011 tax forms ez   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. 2011 tax forms ez These are explained in Publication 502, Medical and Dental Expenses. 2011 tax forms ez   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for HSA purposes. 2011 tax forms ez A medicine or drug will be a qualified medical expense for HSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. 2011 tax forms ez   For HSA purposes, expenses incurred before you establish your HSA are not qualified medical expenses. 2011 tax forms ez State law determines when an HSA is established. 2011 tax forms ez An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established. 2011 tax forms ez   If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses. 2011 tax forms ez   Qualified medical expenses are those incurred by the following persons. 2011 tax forms ez You and your spouse. 2011 tax forms ez All dependents you claim on your tax return. 2011 tax forms ez Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 2011 tax forms ez    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. 2011 tax forms ez You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA. 2011 tax forms ez Insurance premiums. 2011 tax forms ez   You cannot treat insurance premiums as qualified medical expenses unless the premiums are for: Long-term care insurance. 2011 tax forms ez Health care continuation coverage (such as coverage under COBRA). 2011 tax forms ez Health care coverage while receiving unemployment compensation under federal or state law. 2011 tax forms ez Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap). 2011 tax forms ez   The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. 2011 tax forms ez See Limit on long-term care premiums you can deduct in the instructions for Schedule A (Form 1040). 2011 tax forms ez   Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. 2011 tax forms ez For item (4), if you, the account beneficiary, are not 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) generally are not qualified medical expenses. 2011 tax forms ez Health coverage tax credit. 2011 tax forms ez   You cannot claim this credit for premiums that you pay with a tax-free distribution from your HSA. 2011 tax forms ez See Publication 502 for more information on this credit. 2011 tax forms ez Deemed distributions from HSAs. 2011 tax forms ez   The following situations result in deemed taxable distributions from your HSA. 2011 tax forms ez You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs, at any time in 2013. 2011 tax forms ez Your account ceases to be an HSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8889. 2011 tax forms ez You used any portion of any of your HSAs as security for a loan at any time in 2013. 2011 tax forms ez You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. 2011 tax forms ez   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the HSA, Lending of money between you and the HSA, Furnishing goods, services, or facilities between you and the HSA, and Transfer to or use by you, or for your benefit, of any assets of the HSA. 2011 tax forms ez   Any deemed distribution will not be treated as used to pay qualified medical expenses. 2011 tax forms ez These distributions are included in your income and are subject to the additional 20% tax, discussed later. 2011 tax forms ez Recordkeeping. 2011 tax forms ez You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. 2011 tax forms ez Do not send these records with your tax return. 2011 tax forms ez Keep them with your tax records. 2011 tax forms ez Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). 2011 tax forms ez If you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8889. 2011 tax forms ez However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. 2011 tax forms ez Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez If you do not use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. 2011 tax forms ez Report the amount on Form 8889 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez You may have to pay an additional 20% tax on your taxable distribution. 2011 tax forms ez HSA administration and maintenance fees withdrawn by the trustee are not reported as distributions from the HSA. 2011 tax forms ez Additional tax. 2011 tax forms ez   There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. 2011 tax forms ez Figure the tax on Form 8889 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez Exceptions. 2011 tax forms ez   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. 2011 tax forms ez Balance in an HSA An HSA is generally exempt from tax. 2011 tax forms ez You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. 2011 tax forms ez Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). 2011 tax forms ez Earnings on amounts in an HSA are not included in your income while held in the HSA. 2011 tax forms ez Death of HSA Holder You should choose a beneficiary when you set up your HSA. 2011 tax forms ez What happens to that HSA when you die depends on whom you designate as the beneficiary. 2011 tax forms ez Spouse is the designated beneficiary. 2011 tax forms ez   If your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death. 2011 tax forms ez Spouse is not the designated beneficiary. 2011 tax forms ez   If your spouse is not the designated beneficiary of your HSA: The account stops being an HSA, and The fair market value of the HSA becomes taxable to the beneficiary in the year in which you die. 2011 tax forms ez If your estate is the beneficiary, the value is included on your final income tax return. 2011 tax forms ez The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. 2011 tax forms ez Filing Form 8889 You must file Form 8889 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. 2011 tax forms ez You must file the form even if only your employer or your spouse's employer made contributions to the HSA. 2011 tax forms ez If, during the tax year, you are the beneficiary of two or more HSAs or you are a beneficiary of an HSA and you have your own HSA, you must complete a separate Form 8889 for each HSA. 2011 tax forms ez Enter “statement” at the top of each Form 8889 and complete the form as instructed. 2011 tax forms ez Next, complete a controlling Form 8889 combining the amounts shown on each of the statement Forms 8889. 2011 tax forms ez Attach the statements to your tax return after the controlling Form 8889. 2011 tax forms ez Employer Participation This section contains the rules that employers must follow if they decide to make HSAs available to their employees. 2011 tax forms ez Unlike the previous discussions, “you” refers to the employer and not to the employee. 2011 tax forms ez Health plan. 2011 tax forms ez   If you want your employees to be able to have an HSA, they must have an HDHP. 2011 tax forms ez You can provide no additional coverage other than those exceptions listed previously under Other health coverage . 2011 tax forms ez Contributions. 2011 tax forms ez   You can make contributions to your employees' HSAs. 2011 tax forms ez You deduct the contributions on your business income tax return for the year in which you make the contributions. 2011 tax forms ez If the contribution is allocated to the prior year, you still deduct it in the year in which you made the contribution. 2011 tax forms ez   For more information on employer contributions, see Notice 2008-59, 2008-29 I. 2011 tax forms ez R. 2011 tax forms ez B. 2011 tax forms ez 123, questions 23 through 27, available at www. 2011 tax forms ez irs. 2011 tax forms ez gov/irb/2008-29_IRB/ar11. 2011 tax forms ez html. 2011 tax forms ez Comparable contributions. 2011 tax forms ez   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' HSAs. 2011 tax forms ez Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. 2011 tax forms ez The comparability rules do not apply to contributions made through a cafeteria plan. 2011 tax forms ez Comparable participating employees. 2011 tax forms ez   Comparable participating employees: Are covered by your HDHP and are eligible to establish an HSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (part-time, full-time, or former employees). 2011 tax forms ez   To meet the comparability requirements for eligible employees who have not established an HSA by December 31 or have not notified you that they have an HSA, you must meet a notice requirement and a contribution requirement. 2011 tax forms ez   You will meet the notice requirement if by January 15 of the following calendar year you provide a written notice to all such employees. 2011 tax forms ez The notice must state that each eligible employee who, by the last day of February, establishes an HSA and notifies you that they have established an HSA will receive a comparable contribution to the HSA for the prior year. 2011 tax forms ez For a sample of the notice, see Regulation 54. 2011 tax forms ez 4980G-4 A-14(c). 2011 tax forms ez You will meet the contribution requirement for these employees if by April 15, 2014, you contribute comparable amounts plus reasonable interest to the employee's HSA for the prior year. 2011 tax forms ez Note. 2011 tax forms ez For purposes of making contributions to HSAs of non-highly compensated employees, highly compensated employees shall not be treated as comparable participating employees. 2011 tax forms ez Excise tax. 2011 tax forms ez   If you made contributions to your employees' HSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. 2011 tax forms ez Employment taxes. 2011 tax forms ez   Amounts you contribute to your employees' HSAs are generally not subject to employment taxes. 2011 tax forms ez You must report the contributions in box 12 of the Form W-2 you file for each employee. 2011 tax forms ez This includes the amounts the employee elected to contribute through a cafeteria plan. 2011 tax forms ez Enter code “W” in box 12. 2011 tax forms ez Medical Savings Accounts (MSAs) Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder's spouse, or the account holder's dependent(s). 2011 tax forms ez After December 31, 2007, you cannot be treated as an eligible individual for Archer MSA purposes unless: You were an active participant for any tax year ending before January 1, 2008, or You became an active participant for a tax year ending after December 31, 2007, by reason of coverage under a high deductible health plan (HDHP) of an Archer MSA participating employer. 2011 tax forms ez A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder who is eligible for Medicare. 2011 tax forms ez Archer MSAs An Archer MSA is a tax-exempt trust or custodial account that you set up with a U. 2011 tax forms ez S. 2011 tax forms ez financial institution (such as a bank or an insurance company) in which you can save money exclusively for future medical expenses. 2011 tax forms ez What are the benefits of an Archer MSA?   You may enjoy several benefits from having an Archer MSA. 2011 tax forms ez You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040 or Form 1040NR. 2011 tax forms ez The interest or other earnings on the assets in your Archer MSA are tax free. 2011 tax forms ez Distributions may be tax free if you pay qualified medical expenses. 2011 tax forms ez See Qualified medical expenses , later. 2011 tax forms ez The contributions remain in your Archer MSA from year to year until you use them. 2011 tax forms ez An Archer MSA is “portable” so it stays with you if you change employers or leave the work force. 2011 tax forms ez Qualifying for an Archer MSA To qualify for an Archer MSA, you must be either of the following. 2011 tax forms ez An employee (or the spouse of an employee) of a small employer (defined later) that maintains a self-only or family HDHP for you (or your spouse). 2011 tax forms ez A self-employed person (or the spouse of a self-employed person) who maintains a self-only or family HDHP. 2011 tax forms ez You can have no other health or Medicare coverage except what is permitted under Other health coverage , later. 2011 tax forms ez You must be an eligible individual on the first day of a given month to get an Archer MSA deduction for that month. 2011 tax forms ez If another taxpayer is entitled to claim an exemption for you, you cannot claim a deduction for an Archer MSA contribution. 2011 tax forms ez This is true even if the other person does not actually claim your exemption. 2011 tax forms ez Small employer. 2011 tax forms ez   A small employer is generally an employer who had an average of 50 or fewer employees during either of the last 2 calendar years. 2011 tax forms ez The definition of small employer is modified for new employers and growing employers. 2011 tax forms ez Growing employer. 2011 tax forms ez   A small employer may begin HDHPs and Archer MSAs for his or her employees and then grow beyond 50 employees. 2011 tax forms ez The employer will continue to meet the requirement for small employers if he or she: Had 50 or fewer employees when the Archer MSAs began, Made a contribution that was excludable or deductible as an Archer MSA for the last year he or she had 50 or fewer employees, and Had an average of 200 or fewer employees each year after 1996. 2011 tax forms ez Changing employers. 2011 tax forms ez   If you change employers, your Archer MSA moves with you. 2011 tax forms ez However, you may not make additional contributions unless you are otherwise eligible. 2011 tax forms ez High deductible health plan (HDHP). 2011 tax forms ez   To be eligible for an Archer MSA, you must be covered under an HDHP. 2011 tax forms ez An HDHP has: A higher annual deductible than typical health plans, and A maximum limit on the annual out-of-pocket medical expenses that you must pay for covered expenses. 2011 tax forms ez Limits. 2011 tax forms ez   The following table shows the limits for annual deductibles and the maximum out-of-pocket expenses for HDHPs for 2013. 2011 tax forms ez   Self-only coverage Family coverage Minimum annual deductible $2,150 $4,300 Maximum annual deductible $3,200 $6,450 Maximum annual out-of-pocket expenses $4,300 $7,850 Family plans that do not meet the high deductible rules. 2011 tax forms ez   There are some family plans that have deductibles for both the family as a whole and for individual family members. 2011 tax forms ez Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. 2011 tax forms ez If either the deductible for the family as a whole or the deductible for an individual family member is less than the minimum annual deductible for family coverage, the plan does not qualify as an HDHP. 2011 tax forms ez Example. 2011 tax forms ez You have family health insurance coverage in 2013. 2011 tax forms ez The annual deductible for the family plan is $5,500. 2011 tax forms ez This plan also has an individual deductible of $2,000 for each family member. 2011 tax forms ez The plan does not qualify as an HDHP because the deductible for an individual family member is less than the minimum annual deductible ($4,300) for family coverage. 2011 tax forms ez Other health coverage. 2011 tax forms ez   You (and your spouse, if you have family coverage) generally cannot have any other health coverage that is not an HDHP. 2011 tax forms ez However, you can still be an eligible individual even if your spouse has non-HDHP coverage provided you are not covered by that plan. 2011 tax forms ez However, you can have additional insurance that provides benefits only for the following items. 2011 tax forms ez Liabilities incurred under workers' compensation laws, torts, or ownership or use of property. 2011 tax forms ez A specific disease or illness. 2011 tax forms ez A fixed amount per day (or other period) of hospitalization. 2011 tax forms ez You can also have coverage (whether provided through insurance or otherwise) for the following items. 2011 tax forms ez Accidents. 2011 tax forms ez Disability. 2011 tax forms ez Dental care. 2011 tax forms ez Vision care. 2011 tax forms ez Long-term care. 2011 tax forms ez Contributions to an MSA Contributions to an Archer MSA must be made in cash. 2011 tax forms ez You cannot contribute stock or other property to an Archer MSA. 2011 tax forms ez Who can contribute to my Archer MSA?   If you are an employee, your employer may make contributions to your Archer MSA. 2011 tax forms ez (You do not pay tax on these contributions. 2011 tax forms ez ) If your employer does not make contributions to your Archer MSA, or you are self-employed, you can make your own contributions to your Archer MSA. 2011 tax forms ez Both you and your employer cannot make contributions to your Archer MSA in the same year. 2011 tax forms ez You do not have to make contributions to your Archer MSA every year. 2011 tax forms ez    If your spouse is covered by your HDHP and an excludable amount is contributed by your spouse's employer to an Archer MSA belonging to your spouse, you cannot make contributions to your own Archer MSA that year. 2011 tax forms ez Limits There are two limits on the amount you or your employer can contribute to your Archer MSA: The annual deductible limit. 2011 tax forms ez An income limit. 2011 tax forms ez Annual deductible limit. 2011 tax forms ez   You (or your employer) can contribute up to 75% of the annual deductible of your HDHP (65% if you have a self-only plan) to your Archer MSA. 2011 tax forms ez You must have the HDHP all year to contribute the full amount. 2011 tax forms ez If you do not qualify to contribute the full amount for the year, determine your annual deductible limit by using the worksheet in the Instructions for Form 8853, Archer MSAs and Long-Term Care Insurance Contracts. 2011 tax forms ez Example 1. 2011 tax forms ez You have an HDHP for your family all year in 2013. 2011 tax forms ez The annual deductible is $5,000. 2011 tax forms ez You can contribute up to $3,750 ($5,000 × 75%) to your Archer MSA for the year. 2011 tax forms ez Example 2. 2011 tax forms ez You have an HDHP for your family for the entire months of July through December 2013 (6 months). 2011 tax forms ez The annual deductible is $5,000. 2011 tax forms ez You can contribute up to $1,875 ($5,000 × 75% ÷ 12 × 6) to your Archer MSA for the year. 2011 tax forms ez If you and your spouse each have a family plan, you are treated as having family coverage with the lower annual deductible of the two health plans. 2011 tax forms ez The contribution limit is split equally between you unless you agree on a different division. 2011 tax forms ez Income limit. 2011 tax forms ez   You cannot contribute more than you earned for the year from the employer through whom you have your HDHP. 2011 tax forms ez   If you are self-employed, you cannot contribute more than your net self-employment income. 2011 tax forms ez This is your income from self-employment minus expenses (including the deductible part of self-employment tax). 2011 tax forms ez Example 1. 2011 tax forms ez Noah Paul earned $25,000 from ABC Company in 2013. 2011 tax forms ez Through ABC, he had an HDHP for his family for the entire year. 2011 tax forms ez The annual deductible was $5,000. 2011 tax forms ez He can contribute up to $3,750 to his Archer MSA (75% × $5,000). 2011 tax forms ez He can contribute the full amount because he earned more than $3,750 at ABC. 2011 tax forms ez Example 2. 2011 tax forms ez Westley Lawrence is self-employed. 2011 tax forms ez He had an HDHP for his family for the entire year in 2013. 2011 tax forms ez The annual deductible was $5,000. 2011 tax forms ez Based on the annual deductible, the maximum contribution to his Archer MSA would have been $3,750 (75% × $5,000). 2011 tax forms ez However, after deducting his business expenses, Joe's net self-employment income is $2,500 for the year. 2011 tax forms ez Therefore, he is limited to a contribution of $2,500. 2011 tax forms ez Individuals enrolled in Medicare. 2011 tax forms ez   Beginning with the first month you are enrolled in Medicare, you cannot contribute to an Archer MSA. 2011 tax forms ez However, you may be eligible for a Medicare Advantage MSA, discussed later. 2011 tax forms ez When To Contribute You can make contributions to your Archer MSA for 2013 until April 15, 2014. 2011 tax forms ez Reporting Contributions on Your Return Report all contributions to your Archer MSA on Form 8853 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez You should include all contributions you, or your employer, made for 2013, including those made by April 15, 2014, that are designated for 2013. 2011 tax forms ez You should receive Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, from the trustee showing the amount you (or your employer) contributed during the year. 2011 tax forms ez Your employer's contributions should be shown in box 12 of Form W-2, Wage and Tax Statement, with code R. 2011 tax forms ez Follow the instructions for Form 8853 and complete the worksheet in the instructions. 2011 tax forms ez Report your Archer MSA deduction on Form 1040 or Form 1040NR. 2011 tax forms ez Excess contributions. 2011 tax forms ez   You will have excess contributions if the contributions to your Archer MSA for the year are greater than the limits discussed earlier. 2011 tax forms ez Excess contributions are not deductible. 2011 tax forms ez Excess contributions made by your employer are included in your gross income. 2011 tax forms ez If the excess contribution is not included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. 2011 tax forms ez   Generally, you must pay a 6% excise tax on excess contributions. 2011 tax forms ez See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. 2011 tax forms ez The excise tax applies to each tax year the excess contribution remains in the account. 2011 tax forms ez   You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions. 2011 tax forms ez You withdraw the excess contributions by the due date, including extensions, of your tax return. 2011 tax forms ez You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings. 2011 tax forms ez Deducting an excess contribution in a later year. 2011 tax forms ez   You may be able to deduct excess contributions for previous years that are still in your Archer MSA. 2011 tax forms ez The excess contribution you can deduct in the current year is the lesser of the following two amounts. 2011 tax forms ez Your maximum Archer MSA contribution limit for the year minus any amounts contributed to your Archer MSA for the year. 2011 tax forms ez The total excess contributions in your Archer MSA at the beginning of the year. 2011 tax forms ez   Any excess contributions remaining at the end of a tax year are subject to the excise tax. 2011 tax forms ez See Form 5329. 2011 tax forms ez Distributions From an MSA You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. 2011 tax forms ez When you pay medical expenses during the year that are not reimbursed by your HDHP, you can ask the trustee of your Archer MSA to send you a distribution from your Archer MSA. 2011 tax forms ez You can receive tax-free distributions from your Archer MSA to pay for qualified medical expenses (discussed later). 2011 tax forms ez If you receive distributions for other reasons, the amount will be subject to income tax and may be subject to an additional 20% tax as well. 2011 tax forms ez You do not have to make withdrawals from your Archer MSA each year. 2011 tax forms ez If you no longer qualify to make contributions, you can still receive tax-free distributions to pay or reimburse your qualified medical expenses. 2011 tax forms ez A distribution is money you get from your Archer MSA. 2011 tax forms ez The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA. 2011 tax forms ez Qualified medical expenses. 2011 tax forms ez   Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. 2011 tax forms ez These are explained in Publication 502. 2011 tax forms ez   Also, non-prescription medicines (other than insulin) are not considered qualified medical expenses for MSA purposes. 2011 tax forms ez A medicine or drug will be a qualified medical expense for MSA purposes only if the medicine or drug: Requires a prescription, Is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it, or Is insulin. 2011 tax forms ez   Qualified medical expenses are those incurred by the following persons. 2011 tax forms ez You and your spouse. 2011 tax forms ez All dependents you claim on your tax return. 2011 tax forms ez Any person you could have claimed as a dependent on your return except that: The person filed a joint return, The person had gross income of $3,900 or more, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. 2011 tax forms ez    For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child's exemption. 2011 tax forms ez    You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your Archer MSA. 2011 tax forms ez Special rules for insurance premiums. 2011 tax forms ez   Generally, you cannot treat insurance premiums as qualified medical expenses for Archer MSAs. 2011 tax forms ez You can, however, treat premiums for long-term care coverage, health care coverage while you receive unemployment benefits, or health care continuation coverage required under any federal law as qualified medical expenses for Archer MSAs. 2011 tax forms ez Health coverage tax credit. 2011 tax forms ez   You cannot claim this credit for premiums that you pay with a tax-free distribution from your Archer MSA. 2011 tax forms ez See Publication 502 for information on this credit. 2011 tax forms ez Deemed distributions from Archer MSAs. 2011 tax forms ez   The following situations result in deemed taxable distributions from your Archer MSA. 2011 tax forms ez You engaged in any transaction prohibited by section 4975 with respect to any of your Archer MSAs at any time in 2013. 2011 tax forms ez Your account ceases to be an Archer MSA as of January 1, 2013, and you must include the fair market value of all assets in the account as of January 1, 2013, on Form 8853. 2011 tax forms ez You used any portion of any of your Archer MSAs as security for a loan at any time in 2013. 2011 tax forms ez You must include the fair market value of the assets used as security for the loan as income on Form 1040 or Form 1040NR. 2011 tax forms ez   Examples of prohibited transactions include the direct or indirect: Sale, exchange, or leasing of property between you and the Archer MSA, Lending of money between you and the Archer MSA, Furnishing goods, services, or facilities between you and the Archer MSA, and Transfer to or use by you, or for your benefit, of any assets of the Archer MSA. 2011 tax forms ez   Any deemed distribution will not be treated as used to pay qualified medical expenses. 2011 tax forms ez These distributions are included in your income and are subject to the additional 20% tax, discussed later. 2011 tax forms ez Recordkeeping. 2011 tax forms ez You must keep records sufficient to show that: The distributions were exclusively to pay or reimburse qualified medical expenses, The qualified medical expenses had not been previously paid or reimbursed from another source, and The medical expenses had not been taken as an itemized deduction in any year. 2011 tax forms ez Do not send these records with your tax return. 2011 tax forms ez Keep them with your tax records. 2011 tax forms ez Reporting Distributions on Your Return How you report your distributions depends on whether or not you use the distribution for qualified medical expenses (defined earlier). 2011 tax forms ez If you use a distribution from your Archer MSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. 2011 tax forms ez Follow the instructions for the form and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez If you do not use a distribution from your Archer MSA for qualified medical expenses, you must pay tax on the distribution. 2011 tax forms ez Report the amount on Form 8853 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez You may have to pay an additional 20% tax, discussed later, on your taxable distribution. 2011 tax forms ez If an amount (other than a rollover) is contributed to your Archer MSA this year (by you or your employer), you also must report and pay tax on a distribution you receive from your Archer MSA this year that is used to pay medical expenses of someone who is not covered by an HDHP, or is also covered by another health plan that is not an HDHP, at the time the expenses are incurred. 2011 tax forms ez Rollovers. 2011 tax forms ez   Generally, any distribution from an Archer MSA that you roll over into another Archer MSA or an HSA is not taxable if you complete the rollover within 60 days. 2011 tax forms ez An Archer MSA and an HSA can only receive one rollover contribution during a 1-year period. 2011 tax forms ez See the Form 8853 instructions for more information. 2011 tax forms ez Additional tax. 2011 tax forms ez   There is a 20% additional tax on the part of your distributions not used for qualified medical expenses. 2011 tax forms ez Figure the tax on Form 8853 and file it with your Form 1040 or Form 1040NR. 2011 tax forms ez Report the additional tax in the total on Form 1040 or Form 1040NR. 2011 tax forms ez Exceptions. 2011 tax forms ez   There is no additional tax on distributions made after the date you are disabled, reach age 65, or die. 2011 tax forms ez Balance in an Archer MSA An Archer MSA is generally exempt from tax. 2011 tax forms ez You are permitted to take a distribution from your Archer MSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. 2011 tax forms ez Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). 2011 tax forms ez Earnings on amounts in an Archer MSA are not included in your income while held in the Archer MSA. 2011 tax forms ez Death of the Archer MSA Holder You should choose a beneficiary when you set up your Archer MSA. 2011 tax forms ez What happens to that Archer MSA when you die depends on whom you designate as the beneficiary. 2011 tax forms ez Spouse is the designated beneficiary. 2011 tax forms ez   If your spouse is the designated beneficiary of your Archer MSA, it will be treated as your spouse's Archer MSA after your death. 2011 tax forms ez Spouse is not the designated beneficiary. 2011 tax forms ez   If your spouse is not the designated beneficiary of your Archer MSA: The account stops being an Archer MSA, and The fair market value of the Archer MSA becomes taxable to the beneficiary in the year in which you die. 2011 tax forms ez   If your estate is the beneficiary, the fair market value of the Archer MSA will be included on your final income tax return. 2011 tax forms ez The amount taxable to a beneficiary other than the estate is reduced by any qualified medical expenses for the decedent that are paid by the beneficiary within 1 year after the date of death. 2011 tax forms ez Filing Form 8853 You must file Form 8853 with your Form 1040 or Form 1040NR if you (or your spouse, if married filing a joint return) had any activity in your Archer MSA during the year. 2011 tax forms ez You must file the form even if only your employer or your spouse's employer made contributions to the Archer MSA. 2011 tax forms ez If, during the tax year, you are the beneficiary of two or more Archer MSAs or you are a beneficiary of an Archer MSA and you have your own Archer MSA, you must complete a separate Form 8853 for each MSA. 2011 tax forms ez Enter “statement” at the top of each Form 8853 and complete the form as instructed. 2011 tax forms ez Next, complete a controlling Form 8853 combining the amounts shown on each of the statement Forms 8853. 2011 tax forms ez Attach the statements to your tax return after the controlling Form 8853. 2011 tax forms ez Employer Participation This section contains the rules that employers must follow if they decide to make Archer MSAs available to their employees. 2011 tax forms ez Unlike the previous discussions, “you” refers to the employer and not to the employee. 2011 tax forms ez Health plan. 2011 tax forms ez   If you want your employees to be able to have an Archer MSA, you must make an HDHP available to them. 2011 tax forms ez You can provide no additional coverage other than those exceptions listed previously under Other health coverage . 2011 tax forms ez Contributions. 2011 tax forms ez   You can make contributions to your employees' Archer MSAs. 2011 tax forms ez You deduct the contributions on the “Employee benefit programs” line of your business income tax return for the year in which you make the contributions. 2011 tax forms ez If you are filing Form 1040, Schedule C, this is Part II, line 14. 2011 tax forms ez Comparable contributions. 2011 tax forms ez   If you decide to make contributions, you must make comparable contributions to all comparable participating employees' Archer MSAs. 2011 tax forms ez Your contributions are comparable if they are either: The same amount, or The same percentage of the annual deductible limit under the HDHP covering the employees. 2011 tax forms ez Comparable participating employees. 2011 tax forms ez   Comparable participating employees: Are covered by your HDHP and are eligible to establish an Archer MSA, Have the same category of coverage (either self-only or family coverage), and Have the same category of employment (either part-time or full-time). 2011 tax forms ez Excise tax. 2011 tax forms ez   If you made contributions to your employees' Archer MSAs that were not comparable, you must pay an excise tax of 35% of the amount you contributed. 2011 tax forms ez Employment taxes. 2011 tax forms ez   Amounts you contribute to your employees' Archer MSAs are generally not subject to employment taxes. 2011 tax forms ez You must report the contributions in box 12 of the Form W-2 you file for each employee. 2011 tax forms ez Enter code “R” in box 12. 2011 tax forms ez Medicare Advantage MSAs A Medicare Advantage MSA is an Archer MSA designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. 2011 tax forms ez To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare and have a high deductible health plan (HDHP) that meets the Medicare guidelines. 2011 tax forms ez A Medicare Advantage MSA is a tax-exempt trust or custodial savings account that you set up with a financial institution (such as a bank or an insurance company) in which the Medicare program can deposit money for qualified medical expenses. 2011 tax forms ez The money in your account is not taxed if it is used for qualified medical expenses, and it may earn interest or dividends. 2011 tax forms ez An HDHP is a special health insurance policy that has a high deductible. 2011 tax forms ez You choose the policy you want to use as part of your Medicare Advantage MSA plan. 2011 tax forms ez However, the policy must be approved by the Medicare program. 2011 tax forms ez Medicare Advantage MSAs are administered through the federal Medicare program. 2011 tax forms ez You can get information by calling 1-800-Medicare (1-800-633-4227) or through the Internet at www. 2011 tax forms ez medicare. 2011 tax forms ez gov. 2011 tax forms ez Note. 2011 tax forms ez You must file Form 8853, Archer MSAs and Long-Term Care Insurance Contracts, with your tax return if you have a Medicare Advantage MSA. 2011 tax forms ez Flexible Spending Arrangements (FSAs) A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. 2011 tax forms ez FSAs are usually funded through voluntary salary reduction agreements with your employer. 2011 tax forms ez No employment or federal income taxes are deducted from your contribution. 2011 tax forms ez The employer may also contribute. 2011 tax forms ez Note. 2011 tax forms ez Unlike HSAs or Archer MSAs which must be reported on Form 1040 or Form 1040NR, there are no reporting requirements for FSAs on your income tax return. 2011 tax forms ez For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier. 2011 tax forms ez What are the benefits of an FSA?   You may enjoy several benefits from having an FSA. 2011 tax forms ez Contributions made by your employer can be excluded from your gross income. 2011 tax forms ez No employment or federal income taxes are deducted from the contributions. 2011 tax forms ez Withdrawals may be tax free if you pay qualified medical expenses. 2011 tax forms ez See Qualified medical expenses , later. 2011 tax forms ez You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account. 2011 tax forms ez Qualifying for an FSA Health FSAs are employer-established benefit plans. 2011 tax forms ez These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. 2011 tax forms ez Employers have complete flexibility to offer various combinations of benefits in designing their plan. 2011 tax forms ez You do not have to be covered under any other health care plan to participate. 2011 tax forms ez Self-employed persons are not eligible for an FSA. 2011 tax forms ez Certain limitations may apply if you are a highly compensated participant or a key employee. 2011 tax forms ez Contributions to an FSA You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. 2011 tax forms ez This is sometimes called a salary reduction agreement. 2011 tax forms ez The employer may also contribute to your FSA if specified in the plan. 2011 tax forms ez You do not pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. 2011 tax forms ez However, contributions made by your employer to provide coverage for long-term care insurance must be included in income. 2011 tax forms ez When To Contribute At the
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Contact My Local Office in Tennessee

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Chattanooga  5740 Uptain Rd.
Chattanooga, TN 37411 

Monday-Friday - 8:30 a.m.-4:30 p.m.
 

Services Provided

(423) 855-6460 
Jackson  109 S. Highland
Jackson, TN 38301 

Monday- Friday - 8:30 a.m.-4:30 p.m.
(Closed for lunch 12:00 noon - 1:00 p.m.)

 

Services Provided

(731) 423-2441 
Johnson City  2513 Wesley St.
Johnson City, TN 37601 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

Services Provided

(423) 282-5024 
Knoxville  710 Locust St.
Knoxville, TN 37902 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**
 

Services Provided

(865) 545-4794 
Memphis  22 N. Front St.
Memphis, TN 38103 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(901) 544-3243 
Nashville  801 Broadway
Nashville, TN 37203 

Monday-Friday - 8:30 a.m.-4:30 p.m.

 

**This office will be open until 6:00 p.m. on 4/14 & 4/15**


Services Provided

(615) 250-5656 

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).

For information on where to file your tax return please see Where to File Addresses.

The Taxpayer Advocate Service: Call (615) 250-5000 in Nashville or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
801 Broadway, MDP-46
Nashville, TN 37203

Internal Revenue Service
22 N. Front Street, Suite 400
Memphis, TN 38103

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The 2011 Tax Forms Ez

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