Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Easy 1040

Turbotax Deluxe Federal E File State 2010 Old VersionIrs Electronic FilingWhere Can I File My State Taxes For FreeTaxes Late2010 Tax Form 1040ez1040ez CalculatorFiling 1040nrezFree Prior Tax Years FilingFile Tax ExtensionFile Income Tax 2014File 2010 Taxes Online1040 FormOnline 1040ez FormFile Taxes Online Free 20121040ez Free OnlineAmend 1040xMy1040ez ComTaxslayer Com Main Aspx DestinationFile 2006 Taxes For FreeAmend 2011 Tax Return OnlineWww Hrblock Com Lp Efile Html &otppartnerid 9012&campaignid Ps_mcm_9012_0011&omnisource Msn Camp028d E Efile Free M Desktop BmmHow To File An Amended Tax Return For 2012How To File Tax Extension ElectronicallyTax Forms 1040xTurbo Tax Military DiscountFile An Amended Tax ReturnIrs E File 2013Turbo Tax FilingFile 2011 State Taxes FreeCan I Efile A 2011 Tax ReturnHow Can I Amend My 2011 Tax ReturnFilelateMilitary TurbotaxState Income Tax Efile1040ez FileIrs Form10402010 Tax DeadlineFile 2010 Taxes Late Online FreeFiling Taxes MilitaryHr Block Online Tax

Easy 1040

Easy 1040 Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Easy 1040 Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Easy 1040 Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Easy 1040 Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Easy 1040 It is intended only as a guide. Easy 1040 Look in this publication for more complete information. Easy 1040   Appendix A. Easy 1040 Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Easy 1040 Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Easy 1040 Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Easy 1040 Sean enrolled as a full-time graduate student in August 2013 at California State College. Easy 1040 He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Easy 1040 His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Easy 1040 Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Easy 1040 In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Easy 1040 California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Easy 1040 California State College reports amounts billed in 2013 instead of amounts paid during 2013. Easy 1040 In completing Form 8863, the Joneses use the amounts they paid. Easy 1040 Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Easy 1040 Dave and Valerie figure their education credits by completing Form 8863. Easy 1040 They begin Form 8863 on page 2 before completing Part I on page 1. Easy 1040 Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Easy 1040 The Joneses decide to complete Part III for Carey first, as shown later. Easy 1040 They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Easy 1040 The Joneses complete a separate Part III for their son Sean. Easy 1040 They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Easy 1040 They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Easy 1040 Once they have completed Part III for each student, they figure their credits. Easy 1040 The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Easy 1040 They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Easy 1040 The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Easy 1040 They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Easy 1040 They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Easy 1040 The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Easy 1040 The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Easy 1040 They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Easy 1040 This image is too large to be displayed in the current screen. Easy 1040 Please click the link to view the image. Easy 1040 Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Easy 1040 Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Easy 1040 Less adjustments:     a. Easy 1040 Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Easy 1040 Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Easy 1040 Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Easy 1040 Total adjustments (add lines 2a, 2b, and 2c) 0 4. Easy 1040 Adjusted qualified education expenses. Easy 1040 Subtract line 3 from line 1. Easy 1040 If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Easy 1040 Please click the link to view the image. Easy 1040 Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Easy 1040 Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Easy 1040 Less adjustments:     a. Easy 1040 Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Easy 1040 Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Easy 1040 Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Easy 1040 Total adjustments (add lines 2a, 2b, and 2c) 0 4. Easy 1040 Adjusted qualified education expenses. Easy 1040 Subtract line 3 from line 1. Easy 1040 If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Easy 1040 Enter the amount from Form 8863, line 18 1. Easy 1040 1,190 2. Easy 1040 Enter the amount from Form 8863, line 9 2. Easy 1040 1,500 3. Easy 1040 Add lines 1 and 2 3. Easy 1040 2,690 4. Easy 1040 Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Easy 1040 1,000 5. Easy 1040 Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Easy 1040 0 6. Easy 1040 Subtract line 5 from line 4 6. Easy 1040 1,000 7. Easy 1040   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Easy 1040 1,000 This image is too large to be displayed in the current screen. Easy 1040 Please click the link to view the image. Easy 1040 Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Easy 1040 Please click the link to view the image. Easy 1040 Carey Jones page 2 This image is too large to be displayed in the current screen. Easy 1040 Please click the link to view the image. Easy 1040 Filled-in Form 8863 Jones page 2 Appendix B. Easy 1040 Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Easy 1040 See the text for definitions and details. Easy 1040 Do not rely on this chart alone. Easy 1040    Caution:You generally cannot claim more than one benefit for the same education expense. Easy 1040   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Easy 1040    40% of the credit may be refundable (limited to $1,000 per student). Easy 1040 Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Easy 1040 , that must be paid to the educational institution, etc. Easy 1040 , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Easy 1040   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Easy 1040 Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Easy 1040 For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Easy 1040 For each term listed below that has more than one definition, the definition for each education benefit is listed. Easy 1040 Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Easy 1040 If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Easy 1040 Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Easy 1040 They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Easy 1040 For information on a specific benefit, see the appropriate chapter in this publication. Easy 1040 Candidate for a degree:   A student who meets either of the following requirements. Easy 1040 Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Easy 1040 Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Easy 1040 Eligible educational institution:    American opportunity credit. Easy 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Easy 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Easy 1040 Coverdell education savings account (ESA). Easy 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Easy 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Easy 1040 Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Easy 1040 Education savings bond program. Easy 1040 Same as American opportunity credit in this category. Easy 1040 IRA, early distributions from. Easy 1040 Same as American opportunity credit in this category. Easy 1040 Lifetime learning credit. Easy 1040 Same as American opportunity credit in this category. Easy 1040 Qualified tuition program (QTP). Easy 1040 Same as American opportunity credit in this category. Easy 1040 Scholarships and fellowships. Easy 1040 An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Easy 1040 Student loan, cancellation of. Easy 1040 Same as Scholarships and fellowships in this category. Easy 1040 Student loan interest deduction. Easy 1040 Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Easy 1040 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Easy 1040 Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Easy 1040 Tuition and fees deduction. Easy 1040 Same as American opportunity credit in this category. Easy 1040 Eligible student:    American opportunity credit. Easy 1040 A student who meets all of the following requirements for the tax year for which the credit is being determined. Easy 1040 Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Easy 1040 Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Easy 1040 For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Easy 1040 Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Easy 1040 Lifetime learning credit. Easy 1040 A student who is enrolled in one or more courses at an eligible educational institution. Easy 1040 Student loan interest deduction. Easy 1040 A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Easy 1040 Tuition and fees deduction. Easy 1040 A student who is enrolled in one or more courses at an eligible educational institution. Easy 1040 Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Easy 1040 Modified adjusted gross income (MAGI):    American opportunity credit. Easy 1040 Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Easy 1040 Coverdell education savings account (ESA). Easy 1040 Same as American opportunity credit in this category. Easy 1040 Education savings bond program. Easy 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Easy 1040 Lifetime learning credit. Easy 1040 Same as American opportunity credit in this category. Easy 1040 Student loan interest deduction. Easy 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Easy 1040 Tuition and fees deduction. Easy 1040 Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Easy 1040 Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Easy 1040 Qualified education expenses:   See pertinent chapter for specific items. Easy 1040    American opportunity credit. Easy 1040 Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Easy 1040 Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Easy 1040 Does not include expenses for room and board. Easy 1040 Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Easy 1040 Coverdell education savings account (ESA). Easy 1040 Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Easy 1040 Many specialized expenses included for K–12. Easy 1040 Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Easy 1040 Education savings bond program. Easy 1040 Tuition and fees required to enroll at or attend an eligible educational institution. Easy 1040 Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Easy 1040 Does not include expenses for room and board. Easy 1040 Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Easy 1040 IRA, early distributions from. Easy 1040 Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Easy 1040 Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Easy 1040 Lifetime learning credit. Easy 1040 Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Easy 1040 Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Easy 1040 Does not include expenses for room and board. Easy 1040 Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Easy 1040 Qualified tuition program (QTP). Easy 1040 Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Easy 1040 Includes expenses for special needs services and computer access. Easy 1040 Scholarships and fellowships. Easy 1040 Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Easy 1040 Course-related items must be required of all students in the course of instruction. Easy 1040 Student loan interest deduction. Easy 1040 Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Easy 1040 Tuition and fees deduction. Easy 1040 Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Easy 1040 Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Easy 1040 Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Easy 1040 To include as tax on your current year's return an amount allowed as a credit in a prior year. Easy 1040 Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Easy 1040 Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Easy 1040 Prev  Up  Next   Home   More Online Publications
Español

The Easy 1040

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