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

File Federal And State Taxes Free Online

Irs File 1040ezFree State And Federal Tax ReturnsHrblock FreefileFederal Tax Amended ReturnHow To File Taxes StudentHow Do I File 2009 Taxes OnlineFiling 2010 Taxes Late Online FreeFree State Tax Return OnlyCan Ie File 2011 TaxesTurbotax MilitaryI Need To File 2009 Tax Return1040zFiling A Tax AmendmentHow Do I File An Amended Tax ReturnWho Can File 1040ezE File State Taxes OnlyTaxes OnlineFile 2011 TaxesAmend 2010 TaxFiling Tax AmendmentFree Tax FilingCan I File 1040x OnlineFile 2009 Taxes Online For FreeIrs FreeAmended Federal Tax Return FormHow To Refile TaxesFree Downloadable Irs Tax FormsFree FileFiling State Income TaxesIrs Form 1040x1040 Ez Form 2011Income Tax DeadlineFederal Tax Form 1040 Ez 2011Irs Gov 2010 Tax FormsAmend My Taxes2009 Amended Tax Return InstructionsHow Do I File An Amended ReturnIrs Gov EfileAmmend A Tax ReturnHow To Amend Federal Income Tax Return

File Federal And State Taxes Free Online

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

Understanding Your CP75C Notice

You were banned from claiming the Earned Income Credit (EIC) in a prior tax year due to your intentional disregard of the rules or a fraudulent claim. Since your ban is still in effect, we disallowed the EIC for your current tax year.


What you need to do

  • You don’t need to take further action.

You may want to

  • Review this notice with your tax preparer.
  • Review the rules for claiming EIC
  • Call us for assistance at the toll-free telephone number listed in the top right corner of your notice

Answers to Common Questions

What do I need to send?
If you believe we incorrectly applied the ban, you must provide documentation to show that you didn't intentionally disregard the EIC rules for the year we imposed the ban.

Can I file my tax return while I am being audited?
Yes, you should continue to file all required tax returns before the due date to avoid additional penalties and interest.


Tips for next year

If you are banned from claiming the EIC, you won’t be allowed to claim the credit until the year stated on your notice.

Page Last Reviewed or Updated: 07-Mar-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The File Federal And State Taxes Free Online

File federal and state taxes free online 4. File federal and state taxes free online   Transportation Table of Contents Parking fees. File federal and state taxes free online Advertising display on car. File federal and state taxes free online Car pools. File federal and state taxes free online Hauling tools or instruments. File federal and state taxes free online Union members' trips from a union hall. File federal and state taxes free online Car ExpensesStandard Mileage Rate Actual Car Expenses Leasing a Car Disposition of a Car This chapter discusses expenses you can deduct for business transportation when you are not traveling away from home as defined in chapter 1. File federal and state taxes free online These expenses include the cost of transportation by air, rail, bus, taxi, etc. File federal and state taxes free online , and the cost of driving and maintaining your car. File federal and state taxes free online Transportation expenses include the ordinary and necessary costs of all of the following. File federal and state taxes free online Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. File federal and state taxes free online Tax home is defined in chapter 1. File federal and state taxes free online Visiting clients or customers. File federal and state taxes free online Going to a business meeting away from your regular workplace. File federal and state taxes free online Getting from your home to a temporary workplace when you have one or more regular places of work. File federal and state taxes free online These temporary workplaces can be either within the area of your tax home or outside that area. File federal and state taxes free online Transportation expenses do not include expenses you have while traveling away from home overnight. File federal and state taxes free online Those expenses are travel expenses discussed in chapter 1 . File federal and state taxes free online However, if you use your car while traveling away from home overnight, use the rules in this chapter to figure your car expense deduction. File federal and state taxes free online See Car Expenses , later. File federal and state taxes free online Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. File federal and state taxes free online However, there may be exceptions to this general rule. File federal and state taxes free online You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. File federal and state taxes free online Also, daily transportation expenses can be deducted if: (1) you have one or more regular work locations away from your residence or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance. File federal and state taxes free online Illustration of transportation expenses. File federal and state taxes free online    Figure B , earlier, illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. File federal and state taxes free online You may want to refer to it when deciding whether you can deduct your transportation expenses. File federal and state taxes free online Temporary work location. File federal and state taxes free online   If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance. File federal and state taxes free online   If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise. File federal and state taxes free online   If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. File federal and state taxes free online   If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. File federal and state taxes free online It will not be treated as temporary after the date you determine it will last more than 1 year. File federal and state taxes free online   If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. File federal and state taxes free online You may have deductible travel expenses as discussed in chapter 1 . File federal and state taxes free online No regular place of work. File federal and state taxes free online   If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area. File federal and state taxes free online   Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area. File federal and state taxes free online   You cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. File federal and state taxes free online These are nondeductible commuting expenses. File federal and state taxes free online Two places of work. File federal and state taxes free online   If you work at two places in one day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. File federal and state taxes free online However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second. File federal and state taxes free online   Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. File federal and state taxes free online You cannot deduct them. File federal and state taxes free online Armed Forces reservists. File federal and state taxes free online   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. File federal and state taxes free online You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work . File federal and state taxes free online   You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. File federal and state taxes free online In this case, your transportation generally is a nondeductible commuting expense. File federal and state taxes free online However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work. File federal and state taxes free online   If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. File federal and state taxes free online   If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. File federal and state taxes free online These expenses are discussed in chapter 1 . File federal and state taxes free online   If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. File federal and state taxes free online For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules, in chapter 6. File federal and state taxes free online Commuting expenses. File federal and state taxes free online   You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. File federal and state taxes free online These costs are personal commuting expenses. File federal and state taxes free online You cannot deduct commuting expenses no matter how far your home is from your regular place of work. File federal and state taxes free online You cannot deduct commuting expenses even if you work during the commuting trip. File federal and state taxes free online Example. File federal and state taxes free online You sometimes use your cell phone to make business calls while commuting to and from work. File federal and state taxes free online Sometimes business associates ride with you to and from work, and you have a business discussion in the car. File federal and state taxes free online These activities do not change the trip from personal to business. File federal and state taxes free online You cannot deduct your commuting expenses. File federal and state taxes free online Parking fees. File federal and state taxes free online    Fees you pay to park your car at your place of business are nondeductible commuting expenses. File federal and state taxes free online You can, however, deduct business-related parking fees when visiting a customer or client. File federal and state taxes free online Advertising display on car. File federal and state taxes free online   Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. File federal and state taxes free online If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses. File federal and state taxes free online Car pools. File federal and state taxes free online   You cannot deduct the cost of using your car in a nonprofit car pool. File federal and state taxes free online Do not include payments you receive from the passengers in your income. File federal and state taxes free online These payments are considered reimbursements of your expenses. File federal and state taxes free online However, if you operate a car pool for a profit, you must include payments from passengers in your income. File federal and state taxes free online You can then deduct your car expenses (using the rules in this publication). File federal and state taxes free online Hauling tools or instruments. File federal and state taxes free online   Hauling tools or instruments in your car while commuting to and from work does not make your car expenses deductible. File federal and state taxes free online However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car). File federal and state taxes free online Union members' trips from a union hall. File federal and state taxes free online   If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. File federal and state taxes free online Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located. File federal and state taxes free online Office in the home. File federal and state taxes free online   If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. File federal and state taxes free online (See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. File federal and state taxes free online ) Examples of deductible transportation. File federal and state taxes free online   The following examples show when you can deduct transportation expenses based on the location of your work and your home. File federal and state taxes free online Example 1. File federal and state taxes free online You regularly work in an office in the city where you live. File federal and state taxes free online Your employer sends you to a 1-week training session at a different office in the same city. File federal and state taxes free online You travel directly from your home to the training location and return each day. File federal and state taxes free online You can deduct the cost of your daily round-trip transportation between your home and the training location. File federal and state taxes free online Example 2. File federal and state taxes free online Your principal place of business is in your home. File federal and state taxes free online You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business. File federal and state taxes free online Example 3. File federal and state taxes free online You have no regular office, and you do not have an office in your home. File federal and state taxes free online In this case, the location of your first business contact inside the metropolitan area is considered your office. File federal and state taxes free online Transportation expenses between your home and this first contact are nondeductible commuting expenses. File federal and state taxes free online Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. File federal and state taxes free online While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another. File federal and state taxes free online Car Expenses If you use your car for business purposes, you ordinarily can deduct car expenses. File federal and state taxes free online You generally can use one of the two following methods to figure your deductible expenses. File federal and state taxes free online Standard mileage rate. File federal and state taxes free online Actual car expenses. File federal and state taxes free online If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. File federal and state taxes free online See Leasing a Car , later. File federal and state taxes free online In this publication, “car” includes a van, pickup, or panel truck. File federal and state taxes free online For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses, later. File federal and state taxes free online Rural mail carriers. File federal and state taxes free online   If you are a rural mail carrier, you may be able to treat the qualified reimbursement you received as your allowable expense. File federal and state taxes free online Because the qualified reimbursement is treated as paid under an accountable plan, your employer should not include the reimbursement in your income. File federal and state taxes free online   If your vehicle expenses are more than the amount of your reimbursement, you can deduct the unreimbursed expenses as an itemized deduction on Schedule A (Form 1040). File federal and state taxes free online You must complete Form 2106 and attach it to your Form 1040, U. File federal and state taxes free online S. File federal and state taxes free online Individual Income Tax Return. File federal and state taxes free online   A “qualified reimbursement” is the reimbursement you receive that meets both of the following conditions. File federal and state taxes free online It is given as an equipment maintenance allowance (EMA) to employees of the U. File federal and state taxes free online S. File federal and state taxes free online Postal Service. File federal and state taxes free online It is at the rate contained in the 1991 collective bargaining agreement. File federal and state taxes free online Any later agreement cannot increase the qualified reimbursement amount by more than the rate of inflation. File federal and state taxes free online See your employer for information on your reimbursement. File federal and state taxes free online    If you are a rural mail carrier and received a qualified reimbursement, you cannot use the standard mileage rate. File federal and state taxes free online Standard Mileage Rate You may be able to use the standard mileage rate to figure the deductible costs of operating your car for business purposes. File federal and state taxes free online For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. File federal and state taxes free online If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. File federal and state taxes free online You cannot deduct depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. File federal and state taxes free online See Choosing the standard mileage rate and Standard mileage rate not allowed, later. File federal and state taxes free online You generally can use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. File federal and state taxes free online See chapter 6 for more information on reimbursements . File federal and state taxes free online Choosing the standard mileage rate. File federal and state taxes free online   If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. File federal and state taxes free online Then, in later years, you can choose to use either the standard mileage rate or actual expenses. File federal and state taxes free online   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. File federal and state taxes free online For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. File federal and state taxes free online   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. File federal and state taxes free online You cannot revoke the choice. File federal and state taxes free online However, in later years, you can switch from the standard mileage rate to the actual expenses method. File federal and state taxes free online If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. File federal and state taxes free online Example. File federal and state taxes free online Larry is an employee who occasionally uses his own car for business purposes. File federal and state taxes free online He purchased the car in 2011, but he did not claim any unreimbursed employee expenses on his 2011 tax return. File federal and state taxes free online Because Larry did not use the standard mileage rate the first year the car was available for business use, he cannot use the standard mileage rate in 2013 to claim unreimbursed employee business expenses. File federal and state taxes free online   For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation, later. File federal and state taxes free online Standard mileage rate not allowed. File federal and state taxes free online   You cannot use the standard mileage rate if you: Use five or more cars at the same time (such as in fleet operations), Claimed a depreciation deduction for the car using any method other than straight line, for example, MACRS (as discussed later under Depreciation Deduction), Claimed a section 179 deduction (discussed later) on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses after 1997 for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. File federal and state taxes free online (See Rural mail carriers , earlier. File federal and state taxes free online ) Note. File federal and state taxes free online You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above. File federal and state taxes free online Five or more cars. File federal and state taxes free online   If you own or lease five or more cars that are used for business at the same time, you cannot use the standard mileage rate for the business use of any car. File federal and state taxes free online However, you may be able to deduct your actual expenses for operating each of the cars in your business. File federal and state taxes free online See Actual Car Expenses , later, for information on how to figure your deduction. File federal and state taxes free online   You are not using five or more cars for business at the same time if you alternate using (use at different times) the cars for business. File federal and state taxes free online   The following examples illustrate the rules for when you can and cannot use the standard mileage rate for five or more cars. File federal and state taxes free online Example 1. File federal and state taxes free online Marcia, a salesperson, owns three cars and two vans that she alternates using for calling on her customers. File federal and state taxes free online She can use the standard mileage rate for the business mileage of the three cars and the two vans because she does not use them at the same time. File federal and state taxes free online Example 2. File federal and state taxes free online Tony and his employees use his four pickup trucks in his landscaping business. File federal and state taxes free online During the year, he traded in two of his old trucks for two newer ones. File federal and state taxes free online Tony can use the standard mileage rate for the business mileage of all six of the trucks he owned during the year. File federal and state taxes free online Example 3. File federal and state taxes free online Chris owns a repair shop and an insurance business. File federal and state taxes free online He and his employees use his two pickup trucks and van for the repair shop. File federal and state taxes free online Chris alternates using his two cars for the insurance business. File federal and state taxes free online No one else uses the cars for business purposes. File federal and state taxes free online Chris can use the standard mileage rate for the business use of the pickup trucks, van, and the cars because he never has more than four vehicles used for business at the same time. File federal and state taxes free online Example 4. File federal and state taxes free online Maureen owns a car and four vans that are used in her housecleaning business. File federal and state taxes free online Her employees use the vans, and she uses the car to travel to various customers. File federal and state taxes free online Maureen cannot use the standard mileage rate for the car or the vans. File federal and state taxes free online This is because all five vehicles are used in Maureen's business at the same time. File federal and state taxes free online She must use actual expenses for all vehicles. File federal and state taxes free online Interest. File federal and state taxes free online   If you are an employee, you cannot deduct any interest paid on a car loan. File federal and state taxes free online This applies even if you use the car 100% for business as an employee. File federal and state taxes free online   However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. File federal and state taxes free online For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). File federal and state taxes free online You cannot deduct the part of the interest expense that represents your personal use of the car. File federal and state taxes free online    If you use a home equity loan to purchase your car, you may be able to deduct the interest. File federal and state taxes free online See Publication 936, Home Mortgage Interest Deduction, for more information. File federal and state taxes free online Personal property taxes. File federal and state taxes free online   If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 7 state and local personal property taxes on motor vehicles. File federal and state taxes free online You can take this deduction even if you use the standard mileage rate or if you do not use the car for business. File federal and state taxes free online   If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). File federal and state taxes free online If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040). File federal and state taxes free online Parking fees and tolls. File federal and state taxes free online   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. File federal and state taxes free online (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. File federal and state taxes free online ) Sale, trade-in, or other disposition. File federal and state taxes free online   If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. File federal and state taxes free online See Disposition of a Car , later. File federal and state taxes free online Actual Car Expenses If you do not use the standard mileage rate, you may be able to deduct your actual car expenses. File federal and state taxes free online If you qualify to use both methods, you may want to figure your deduction both ways to see which gives you a larger deduction. File federal and state taxes free online Actual car expenses include: Depreciation Licenses Lease  payments Registration  fees Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees   If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. File federal and state taxes free online Continue to keep records, as explained later in chapter 5 . File federal and state taxes free online Business and personal use. File federal and state taxes free online   If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. File federal and state taxes free online You can divide your expense based on the miles driven for each purpose. File federal and state taxes free online Example. File federal and state taxes free online You are a sales representative for a clothing firm and drive your car 20,000 miles during the year: 12,000 miles for business and 8,000 miles for personal use. File federal and state taxes free online You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense. File federal and state taxes free online Employer-provided vehicle. File federal and state taxes free online   If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. File federal and state taxes free online You cannot use the standard mileage rate. File federal and state taxes free online See Vehicle Provided by Your Employer in chapter 6. File federal and state taxes free online Interest on car loans. File federal and state taxes free online   If you are an employee, you cannot deduct any interest paid on a car loan. File federal and state taxes free online This interest is treated as personal interest and is not deductible. File federal and state taxes free online If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate. File federal and state taxes free online Taxes paid on your car. File federal and state taxes free online   If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. File federal and state taxes free online Enter the amount paid on line 7 of Schedule A (Form 1040). File federal and state taxes free online Sales taxes. File federal and state taxes free online   Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later. File federal and state taxes free online Fines and collateral. File federal and state taxes free online   You cannot deduct fines you pay or collateral you forfeit for traffic violations. File federal and state taxes free online Casualty and theft losses. File federal and state taxes free online   If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. File federal and state taxes free online See Publication 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car. File federal and state taxes free online Depreciation and section 179 deductions. File federal and state taxes free online   Generally, the cost of a car, plus sales tax and improvements, is a capital expense. File federal and state taxes free online Because the benefits last longer than 1 year, you generally cannot deduct a capital expense. File federal and state taxes free online However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. File federal and state taxes free online Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. File federal and state taxes free online The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later. File federal and state taxes free online   Generally, there are limits on these deductions. File federal and state taxes free online Special rules apply if you use your car 50% or less in your work or business. File federal and state taxes free online   You can claim a section 179 deduction and use a depreciation method other than straight line only if you do not use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service. File federal and state taxes free online   If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you cannot use the standard mileage rate on that car in any future year. File federal and state taxes free online Car defined. File federal and state taxes free online   For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. File federal and state taxes free online Its unloaded gross vehicle weight must not be more than 6,000 pounds. File federal and state taxes free online A car includes any part, component, or other item physically attached to it or usually included in the purchase price. File federal and state taxes free online   A car does not include: An ambulance, hearse, or combination ambulance-hearse used directly in a business, A vehicle used directly in the business of transporting persons or property for pay or hire, or A truck or van that is a qualified nonpersonal use vehicle. File federal and state taxes free online Qualified nonpersonal use vehicles. File federal and state taxes free online   These are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. File federal and state taxes free online They include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. File federal and state taxes free online Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles. File federal and state taxes free online More information. File federal and state taxes free online   See Depreciation Deduction , later, for more information on how to depreciate your vehicle. File federal and state taxes free online Section 179 Deduction The section 179 deduction allows you to treat a portion or all of the cost of a car as a current expense. File federal and state taxes free online If you choose to deduct all or part of the cost as a current expense, you must reduce your depreciable basis in the car by the amount of the section 179 deduction. File federal and state taxes free online There is a limit on the total section 179 deduction, special depreciation allowance, and depreciation deduction for cars, trucks, and vans that may reduce or eliminate any benefit from claiming the section 179 deduction. File federal and state taxes free online See Depreciation Limits, later. File federal and state taxes free online You can claim the section 179 deduction only in the year you place the car in service. File federal and state taxes free online For this purpose, a car is placed in service when it is ready and available for a specifically assigned use, whether in a trade or business, a tax-exempt activity, a personal activity, or for the production of income. File federal and state taxes free online Even if you are not using the property, it is in service when it is ready and available for its specifically assigned use. File federal and state taxes free online A car first used for personal purposes cannot qualify for the deduction in a later year when its use changes to business. File federal and state taxes free online Example. File federal and state taxes free online In 2012, you bought a new car and used it for personal purposes. File federal and state taxes free online In 2013, you began to use it for business. File federal and state taxes free online Changing its use to business use does not qualify the cost of your car for a section 179 deduction in 2013. File federal and state taxes free online However, you can claim a depreciation deduction for the business use of the car starting in 2013. File federal and state taxes free online See Depreciation Deduction , later. File federal and state taxes free online More than 50% business use requirement. File federal and state taxes free online   You must use the property more than 50% for business to claim any section 179 deduction. File federal and state taxes free online If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. File federal and state taxes free online The result is the cost of the property that can qualify for the section 179 deduction. File federal and state taxes free online Example. File federal and state taxes free online Peter purchased a car in April 2013 for $24,500 and used it 60% for business. File federal and state taxes free online Based on his business usage, the total cost of Peter's car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% business use). File federal and state taxes free online But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later. File federal and state taxes free online Limits. File federal and state taxes free online   There are limits on: The amount of the section 179 deduction, The section 179 deduction for sport utility and certain other vehicles, and The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property. File federal and state taxes free online Limit on the amount of the section 179 deduction. File federal and state taxes free online   For 2013, the total amount you can choose to deduct under section 179 generally cannot be more than $500,000. File federal and state taxes free online   If the cost of your section 179 property placed in service in 2013 is over $2,000,000, you must reduce the $500,000 dollar limit (but not below zero) by the amount of cost over $2,000,000. File federal and state taxes free online If the cost of your section 179 property placed in service during 2013 is $2,500,000 or more, you cannot take a section 179 deduction. File federal and state taxes free online   The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year. File federal and state taxes free online   If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. File federal and state taxes free online   If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. File federal and state taxes free online You must allocate the dollar limit (after any reduction) between you. File federal and state taxes free online   For more information on the above section 179 deduction limits, see Publication 946. File federal and state taxes free online Limit for sport utility and certain other vehicles. File federal and state taxes free online   For sport utility and certain other vehicles placed in service in 2013, the portion of the vehicle's cost taken into account in figuring your section 179 deduction is limited to $25,000. File federal and state taxes free online This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is not subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at no more than 14,000 pounds gross vehicle weight. File federal and state taxes free online However, the $25,000 limit does not apply to any vehicle: Designed to have a seating capacity of more than nine persons behind the driver's seat, Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or That has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield. File federal and state taxes free online    Limit on total section 179, special depreciation allowance, and depreciation deduction. File federal and state taxes free online   Generally, the total amount of section 179, special depreciation allowance, and depreciation deduction you can claim for a car that is qualified property and that you placed in service in 2013 is $11,160. File federal and state taxes free online The limit is reduced if your business use of the car is less than 100%. File federal and state taxes free online See Depreciation Limits , later, for more information. File federal and state taxes free online Example. File federal and state taxes free online In the earlier example under More than 50% business use requirement, Peter had a car with a cost (for purposes of the section 179 deduction) of $14,700. File federal and state taxes free online However, based on Peter's business usage of his car, the total of his section 179, special depreciation allowance, and depreciation deductions is limited to $6,696 ($11,160 limit x 60% business use). File federal and state taxes free online Cost of car. File federal and state taxes free online   For purposes of the section 179 deduction, the cost of the car does not include any amount figured by reference to any other property held by you at any time. File federal and state taxes free online For example, if you buy (for cash and a trade-in) a new car to use in your business, your cost for purposes of the section 179 deduction does not include your adjusted basis in the car you trade in for the new car. File federal and state taxes free online Your cost includes only the cash you paid. File federal and state taxes free online Basis of car for depreciation. File federal and state taxes free online   The amount of the section 179 deduction reduces your basis in your car. File federal and state taxes free online If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. File federal and state taxes free online The resulting amount is the basis in your car you use to figure your depreciation deduction. File federal and state taxes free online When to choose. File federal and state taxes free online   If you want to take the section 179 deduction, you must make the choice in the tax year you place the car in service for business or work. File federal and state taxes free online How to choose. File federal and state taxes free online    Employees use Form 2106 to make this choice and report the section 179 deduction. File federal and state taxes free online All others use Form 4562. File federal and state taxes free online   File the appropriate form with either of the following. File federal and state taxes free online Your original tax return filed for the year the property was placed in service (whether or not you file it timely). File federal and state taxes free online An amended return filed within the time prescribed by law. File federal and state taxes free online An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. File federal and state taxes free online The amended return must also include any resulting adjustments to taxable income. File federal and state taxes free online    You must keep records that show the specific identification of each piece of qualifying section 179 property. File federal and state taxes free online These records must show how you acquired the property, the person you acquired it from, and when you placed it in service. File federal and state taxes free online Revoking an election. File federal and state taxes free online   An election (or any specification made in the election) to take a section 179 deduction for 2013 can only be revoked with the Commissioner's approval. File federal and state taxes free online Recapture of section 179 deduction. File federal and state taxes free online   To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. File federal and state taxes free online If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. File federal and state taxes free online Any section 179 deduction claimed on the car is included in calculating the excess depreciation. File federal and state taxes free online For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. File federal and state taxes free online Dispositions. File federal and state taxes free online   If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. File federal and state taxes free online You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). File federal and state taxes free online For information on the disposition of a car, see Disposition of a Car , later. File federal and state taxes free online Special Depreciation Allowance You may be able to claim the special depreciation allowance for your car, truck, or van, if it is qualified property and was placed in service in 2013. File federal and state taxes free online The allowance is an additional depreciation deduction of 50% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS). File federal and state taxes free online The special depreciation allowance applies only for the first year the car is placed in service. File federal and state taxes free online To qualify for the allowance more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction, later). File federal and state taxes free online Combined depreciation. File federal and state taxes free online   Your combined section 179 deduction, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for cars of $11,160 ($3,160 if you elect not to claim the special depreciation allowance). File federal and state taxes free online For trucks and vans, the first-year limit remains at $11,360 ($3,360 if you elect not to claim the special depreciation allowance). File federal and state taxes free online See Depreciation Limits , later in this chapter. File federal and state taxes free online Qualified car. File federal and state taxes free online   To be a qualified car (including trucks and vans), the car must meet all of the following tests. File federal and state taxes free online You purchased the car new on or after January 1, 2008, but only if no binding written contract to acquire the car existed before January 1, 2008, You placed the car in service in your trade or business before January 1, 2014, You used the car more than 50% in a qualified business use. File federal and state taxes free online Election not to claim the special depreciation allowance. File federal and state taxes free online   You can elect not to claim the special depreciation allowance for your car, truck, or van, that is qualified property. File federal and state taxes free online If you make this election, it applies to all 5-year property placed in service during the year. File federal and state taxes free online   To make the election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property acquired on or after January 1, 2008. File federal and state taxes free online    Unless you elect not to claim the special depreciation allowance, you must reduce the car's adjusted basis by the amount of the allowance, even if the allowance was not claimed. File federal and state taxes free online Depreciation Deduction If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. File federal and state taxes free online This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car. File federal and state taxes free online You generally need to know the following things about the car you intend to depreciate. File federal and state taxes free online Your basis in the car. File federal and state taxes free online The date you place the car in service. File federal and state taxes free online The method of depreciation and recovery period you will use. File federal and state taxes free online Basis. File federal and state taxes free online   Your basis in a car for figuring depreciation is generally its cost. File federal and state taxes free online This includes any amount you borrow or pay in cash, other property, or services. File federal and state taxes free online   Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). File federal and state taxes free online However, in some situations you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). File federal and state taxes free online For one of these situations see Exception under Methods of depreciation, later. File federal and state taxes free online   If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. File federal and state taxes free online Additional rules concerning basis are discussed later in this chapter under Unadjusted basis . File federal and state taxes free online Placed in service. File federal and state taxes free online   You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. File federal and state taxes free online Depreciation begins when the car is placed in service for use in your work or business or for the production of income. File federal and state taxes free online   For purposes of computing depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion. File federal and state taxes free online Car placed in service and disposed of in the same year. File federal and state taxes free online   If you place a car in service and dispose of it in the same tax year, you cannot claim any depreciation deduction for that car. File federal and state taxes free online Methods of depreciation. File federal and state taxes free online   Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery System (MACRS). File federal and state taxes free online MACRS is discussed later in this chapter. File federal and state taxes free online Exception. File federal and state taxes free online   If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you cannot depreciate your car under the MACRS rules. File federal and state taxes free online You must use straight line depreciation over the estimated remaining useful life of the car. File federal and state taxes free online   To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. File federal and state taxes free online The rate per mile varies depending on the year(s) you used the standard mileage rate. File federal and state taxes free online For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car, later. File federal and state taxes free online   This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . File federal and state taxes free online You must use your adjusted basis in your car to figure your depreciation deduction. File federal and state taxes free online For additional information on the straight line method of depreciation, see Publication 946. File federal and state taxes free online More-than-50%-use test. File federal and state taxes free online   Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. File federal and state taxes free online You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car. File federal and state taxes free online   If your business use is 50% or less, you must use the straight line method to depreciate your car. File federal and state taxes free online This is explained later under Car Used 50% or Less for Business . File federal and state taxes free online Qualified business use. File federal and state taxes free online   A qualified business use is any use in your trade or business. File federal and state taxes free online It does not include use for the production of income (investment use). File federal and state taxes free online However, you do combine your business and investment use to compute your depreciation deduction for the tax year. File federal and state taxes free online Use of your car by another person. File federal and state taxes free online   Do not treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions. File federal and state taxes free online It is directly connected with your business. File federal and state taxes free online It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income). File federal and state taxes free online It results in a payment of fair market rent. File federal and state taxes free online This includes any payment to you for the use of your car. File federal and state taxes free online Business use changes. File federal and state taxes free online   If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. File federal and state taxes free online See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business, later. File federal and state taxes free online    Property does not cease to be used more than 50% in qualified business use by reason of a transfer at death. File federal and state taxes free online Use for more than one purpose. File federal and state taxes free online   If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. File federal and state taxes free online You do this on the basis of mileage. File federal and state taxes free online Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose. File federal and state taxes free online Change from personal to business use. File federal and state taxes free online   If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. File federal and state taxes free online In this case, you figure the percentage of business use for the year as follows. File federal and state taxes free online Determine the percentage of business use for the period following the change. File federal and state taxes free online Do this by dividing business miles by total miles driven during that period. File federal and state taxes free online Multiply the percentage in (1) by a fraction. File federal and state taxes free online The numerator (top number) is the number of months the car is used for business and the denominator (bottom number) is 12. File federal and state taxes free online Example. File federal and state taxes free online You use a car only for personal purposes during the first 6 months of the year. File federal and state taxes free online During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. File federal and state taxes free online This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. File federal and state taxes free online Your business use for the year is 40% (80% × 6/12). File federal and state taxes free online Limits. File federal and state taxes free online   The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. File federal and state taxes free online The maximum amount you can claim depends on the year in which you placed your car in service. File federal and state taxes free online You have to reduce the maximum amount if you did not use the car exclusively for business. File federal and state taxes free online See Depreciation Limits , later. File federal and state taxes free online Unadjusted basis. File federal and state taxes free online   You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . File federal and state taxes free online Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts. File federal and state taxes free online   To figure your unadjusted basis, begin with your car's original basis, which generally is its cost. File federal and state taxes free online Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. File federal and state taxes free online Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. File federal and state taxes free online Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, clean-fuel vehicle deduction (for vehicles placed in service before Jan. File federal and state taxes free online 1, 2006), and alternative motor vehicle credit. File federal and state taxes free online   See Form 8910 for information on the alternative motor vehicle credit. File federal and state taxes free online If your business use later falls to 50% or less, you may have to recapture (include in your income) any excess depreciation. File federal and state taxes free online See Car Used 50% or Less for Business, later, for more information. File federal and state taxes free online If you acquired the car by gift or inheritance, see Publication 551, Basis of Assets, for information on your basis in the car. File federal and state taxes free online Improvements. File federal and state taxes free online   A major improvement to a car is treated as a new item of 5-year recovery property. File federal and state taxes free online It is treated as placed in service in the year the improvement is made. File federal and state taxes free online It does not matter how old the car is when the improvement is added. File federal and state taxes free online Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. File federal and state taxes free online However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. File federal and state taxes free online Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) cannot be more than the depreciation limit that applies for that year. File federal and state taxes free online See Depreciation Limits , later. File federal and state taxes free online Car trade-in. File federal and state taxes free online   If you traded one car (the “old car”) for another car (the “new car”) in 2013, there are two ways you can treat the transaction. File federal and state taxes free online You can elect to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. File federal and state taxes free online If you make this election, you treat the old car as disposed of at the time of the trade-in. File federal and state taxes free online The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car's use had been for business purposes) plus any additional amount you paid for the new car. File federal and state taxes free online You then figure your depreciation deduction for the new car beginning with the date you placed it in service. File federal and state taxes free online You make this election by completing Form 2106, Part II, Section D. File federal and state taxes free online This method is explained later, beginning at Effect of trade-in on basis . File federal and state taxes free online If you do not make the election described in (1), you must figure depreciation separately for the remaining basis of the old car and for any additional amount you paid for the new car. File federal and state taxes free online You must apply two depreciation limits (see Depreciation Limits , later). File federal and state taxes free online The limit that applies to the remaining basis of the old car generally is the amount that would have been allowed had you not traded in the old car. File federal and state taxes free online The limit that applies to the additional amount you paid for the new car generally is the limit that applies for the tax year, reduced by the depreciation allowance for the remaining basis of the old car. File federal and state taxes free online You must use Form 4562 to compute your depreciation deduction. File federal and state taxes free online You cannot use Form 2106, Part II, Section D. File federal and state taxes free online This method is explained in Publication 946. File federal and state taxes free online   If you elect to use the method described in (1), you must do so on a timely filed tax return (including extensions). File federal and state taxes free online Otherwise, you must use the method described in (2). File federal and state taxes free online Effect of trade-in on basis. File federal and state taxes free online   The discussion that follows applies to trade-ins of cars in 2013, where the election was made to treat the transaction as a tax-free disposition of the old car and the purchase of the new car. File federal and state taxes free online For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2013, for which the election was not made, see Publication 946 and Regulations section 1. File federal and state taxes free online 168(i)-6(d)(3). File federal and state taxes free online Traded car used only for business. File federal and state taxes free online   If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car. File federal and state taxes free online Example. File federal and state taxes free online Paul trades in a car that has an adjusted basis of $5,000 for a new car. File federal and state taxes free online In addition, he pays cash of $20,000 for the new car. File federal and state taxes free online His original basis of the new car is $25,000 (his $5,000 adjusted basis in the old car plus the $20,000 cash paid). File federal and state taxes free online Paul's unadjusted basis is $25,000 unless he claims the section 179 deduction, special depreciation allowance, or has other increases or decreases to his original basis, discussed under Unadjusted basis , earlier. File federal and state taxes free online Traded car used partly in business. File federal and state taxes free online   If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. File federal and state taxes free online This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. File federal and state taxes free online (This adjustment is not used, however, when you determine the gain or loss on the later disposition of the new car. File federal and state taxes free online See Publication 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car. File federal and state taxes free online )   To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. File federal and state taxes free online Then subtract from that total the excess, if any, of: The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over The total of the amounts actually allowed as depreciation during those years. File federal and state taxes free online For information about figuring depreciation, see Modified Accelerated Cost Recovery System (MACRS) , which follows Example 2, later. File federal and state taxes free online Modified Accelerated Cost Recovery System (MACRS). File federal and state taxes free online   The Modified Accelerated Cost Recovery System (MACRS) is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income. File federal and state taxes free online   The maximum amount you can deduct is limited, depending on the year you placed your car in service. File federal and state taxes free online See Depreciation Limits , later. File federal and state taxes free online Recovery period. File federal and state taxes free online   Under MACRS, cars are classified as 5-year property. File federal and state taxes free online You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. File federal and state taxes free online This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year. File federal and state taxes free online Depreciation deduction for certain Indian reservation property. File federal and state taxes free online   Shorter recovery periods are provided under MACRS for qualified Indian reservation property placed in service on Indian reservations after 1993 and before 2014. File federal and state taxes free online The recovery that applies for a business-use car is 3 years instead of 5 years. File federal and state taxes free online However, the depreciation limits, discussed later, will still apply. File federal and state taxes free online   For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Publication 946. File federal and state taxes free online Depreciation methods. File federal and state taxes free online   You can use one of the following methods to depreciate your car. File federal and state taxes free online The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. File federal and state taxes free online The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction. File federal and state taxes free online The straight line method (SL) over a 5-year recovery period. File federal and state taxes free online    If you use Table 4-1 (discussed later under MACRS depreciation chart) to determine your depreciation rate for 2013, you do not need to determine in what year using the straight line method provides an equal or greater deduction. File federal and state taxes free online This is because the chart has the switch to the straight line method built into its rates. File federal and state taxes free online   Before choosing a method, you may wish to consider the following facts. File federal and state taxes free online Using the straight line method provides equal yearly deductions throughout the recovery period. File federal and state taxes free online Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year. File federal and state taxes free online MACRS depreciation chart. File federal and state taxes free online   A 2013 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . File federal and state taxes free online Using this table will make it easy for you to figure the 2013 depreciation deduction for your car. File federal and state taxes free online A similar chart appears in the Instructions for Form 2106. File federal and state taxes free online    You may have to use the tables in Publication 946 instead of using this MACRS Depreciation Chart. File federal and state taxes free online   You must use the Depreciation Tables in Publication 946 rather than the 2013 MACRS Depreciation Chart in this publication if any one of the following four conditions applies to you. File federal and state taxes free online You file your return on a fiscal year basis. File federal and state taxes free online You file your return for a short tax year (less than 12 months). File federal and state taxes free online During the year, all of the following conditions apply. File federal and state taxes free online You placed some property in service from January through September. File federal and state taxes free online You placed some property in service from October through December. File federal and state taxes free online Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year. File federal and state taxes free online   You placed qualified property in service on an Indian reservation. File federal and state taxes free online Depreciation in future years. File federal and state taxes free online   If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. File federal and state taxes free online However, you cannot continue to use the chart if your basis in your car is adjusted because of a casualty. File federal and state taxes free online In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. File federal and state taxes free online See Figuring the Deduction Without Using the Tables in chapter 4 of Publication 946. File federal and state taxes free online    In future years, do not use the chart in this edition of the publication. File federal and state taxes free online Instead, use the chart in the publication or the form instructions for those future years. File federal and state taxes free online Disposition of car during recovery period. File federal and state taxes free online   If you dispose of the car before the end of the recovery period, you are generally allowed a half year of depreciation in the year of disposition unless you purchased the car during the last quarter of a year. File federal and state taxes free online See Depreciation deduction for the year of disposition under Disposition of a Car, later, for information on how to figure the depreciation allowed in the year of disposition. File federal and state taxes free online How to use the 2013 chart. File federal and state taxes free online   To figure your depreciation deduction for 2013, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. File federal and state taxes free online Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. File federal and state taxes free online If you prefer to figure your depreciation deduction without the help of the chart, see Publication 946. File federal and state taxes free online    Your deduction cannot be more than the maximum depreciation limit for cars. File federal and state taxes free online See Depreciation Limits, later. File federal and state taxes free online Example. File federal and state taxes free online Phil bought a used truck in February 2012 to use exclusively in his landscape business. File federal and state taxes free online He paid $9,200 for the truck with no trade-in. File federal and state taxes free online Phil did not claim any section 179 deduction, the truck did not qualify for the special depreciation allowance, and he chose to use the 200% DB method to get the largest depreciation deduction in the early years. File federal and state taxes free online Phil used the MACRS depreciation chart in 2012 to find his percentage. File federal and state taxes free online The unadjusted basis of his truck equals its cost because Phil used it exclusively for business. File federal and state taxes free online He multiplied the unadjusted basis of his truck, $9,200, by the percentage that applied, 20%, to figure his 2012 depreciation deduction of $1,840. File federal and state taxes free online In 2013, Phil used the truck for personal purposes when he repaired his father's cabin. File federal and state taxes free online His records show that the business use of his truck was 90% in 2013. File federal and state taxes free online Phil used Table 4-1 to find his percentage. File federal and state taxes free online Reading down the first column for the date placed in service and across to the 200% DB column, he locates his percentage, 32%. File federal and state taxes free online He multiplies the unadjusted basis of his truck, $8,280 ($9,200 cost × 90% business use), by 32% to figure his 2013 depreciation deduction of $2,650. File federal and state taxes free online Depreciation Limits There are limits on the amount you can deduct for depreciation of your car, truck, or van. File federal and state taxes free online The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. File federal and state taxes free online The maximum amount you can deduct each year depends on the year you place the car in service. File federal and state taxes free online These limits are shown in the following tables. File federal and state taxes free online   Maximum Depreciation Deduction for Cars Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2012–2013 $11,1601 $5,100 $3,050 $1,875 2010–2011 11,0602 4,900 2,950 1,775 2008–2009 10,9603 4,800 2,850 1,775 2007 3,060 4,900 2,850 1,775 2006 2,960 4,800 2,850 1,775 2005 2,960 4,700 2,850 1,675 2004 10,6103 4,800 2,850 1,675 5/06/2003– 12/31/2003 10,7104 4,900 2,950 1,775 1/01/2003– 5/05/2003 7,6605 4,900 2,950 1,775 2001–2002 7,6605 4,900 2,950 1,775 2000 3,060 4,900 2,950 1,775 1$3,160 if the car is not qualified property or if you elect not to claim the special depreciation allowance. File federal and state taxes free online 2$3,060 if the car is not qualified property or if you elect not to claim the special depreciation allowance. File federal and state taxes free online 3$2,960 if the car is not qualified property or if you elect not to claim the special depreciation allowance. File federal and state taxes free online 4$7,660 if you acquired the car before 5/6/2003. File federal and state taxes free online $3,060 if the car is not qualified property or if you elect not to claim any special depreciation allowance. File federal and state taxes free online 5$3,060 if you acquired the car before 9/11/2001, the car is not qualified property, or you elect not to claim the special depreciation allowance. File federal and state taxes free online Trucks and vans. File federal and state taxes free online   For 2013, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. File federal and state taxes free online A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less. File federal and state taxes free online For trucks and vans placed in service before 2003, use the Maximum Depreciation Deduction for Cars table. File federal and state taxes free online Maximum Depreciation Deduction for Trucks and Vans Date       4th & Placed 1st 2nd 3rd Later In Service Year Year Year Years 2013 $11,3601 $5,400 $3,250 $1,975 2012 $11,3601 $5,300 $3,150 $1,875 2011 11,2601 5,200 3,150 1,875 2010 11,1601 5,100 3,050 1,875 2009 11,0601 4,900 2,950 1,775 2008 11,1601 5,100 3,050 1,875 2007 3,260 5,200 3,050 1,875 2005–2006 3,260 5,200 3,150 1,875 2004 10,9101 5,300 3,150 1,875 2003 11,0101,2 5,400 3,250 1,975 1If the special depreciation allowance does not apply or you make the election not to claim the special depreciation allowance, the first-year limit is $3,360 for 2012 and 2013, $3,260 for 2011, $3,160 for 2010, $3,060 for 2009, $3,160 for 2008, $3,260 for 2004, and $3,360 for 2003. File federal and state taxes free online 2If the truck or van was acquired before 5/06/2003, the truck or van is qualified property, and you claim the special depreciation allowance for the truck or van, the maximum deduction is $7,960. File federal and state taxes free online Car used less than full year. File federal and state taxes free online   The depreciation limits are not reduced if you use a car for less than a full year. File federal and state taxes free online This means that you do not reduce the limit when you either place a car in service or dispose of a car during the year. File federal and state taxes free online However, the depreciation limits are reduced if you do not use the car exclusively for business and investment purposes. File federal and state taxes free online See Reduction for personal use , next. File federal and state taxes free online Reduction for personal use. File federal and state taxes free online   The depreciation limits are reduced based on your percentage of personal use. File federal and state taxes free online If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year. File federal and state taxes free online Section 179 deduction. File federal and state taxes free online   The section 179 deduction is treated as a depreciation deduction. File federal and state taxes free online If you place a car that is not a truck or van in service in 2013, use it only for business, and choose the section 179 deduction, the special depreciation allowance, and the depreciation deduction for that car for 2013 is limited to $11,160. File federal and state taxes free online Example. File federal and state taxes free online On September 4, 2013, Jack bought a used car for $10,000 and placed it in service. File federal and state taxes free online He used it 80% for his business, and he chooses to take a section 179 deduction for the car. File federal and state taxes free online The car is not qualified property for purposes of the special depreciation allowance. File federal and state taxes free online Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. File federal and state taxes free online This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%). File federal and state taxes free online Jack then figures that his section 179 deduction for 2013 is limited to $2,528 (80% of $3,160). File federal and state taxes free online He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. File federal and state taxes free online Jack has reached his maximum depreciation deduction for 2013. File federal and state taxes free online For 2014, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction. File federal and state taxes free online Deductions in years after the recovery period. File federal and state taxes free online   If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. File federal and state taxes free online If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends. File federal and state taxes free online Unrecovered basis. File federal and state taxes free online   This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use. File federal and state taxes free online The recovery period. File federal and state taxes free online   For 5-year property, your recovery period is 6 calendar years. File federal and state taxes free online A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year. File federal and state taxes free online   Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. File federal and state taxes free online You determine your unrecovered basis in the 7th year after you placed the car in service. File federal and state taxes free online How to treat unrecovered basis. File federal and state taxes free online   If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. File federal and state taxes free online The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. File federal and state taxes free online For example, no deduction is allowed for a year you use your car 100% for personal purposes. File federal and state taxes free online Example. File federal and state taxes free online In April 2007, Bob bought and placed in service a car he used exclusively in his business. File federal and state taxes free online The car cost $31,500. File federal and state taxes free online Bob did not claim a section 179 deduction or the special depreciation allowance for the car. File federal and state taxes free online He continued to use the car 100% in his business throughout the recovery period (2007 through 2012). File federal and state taxes free online For those years, Bob used the MACRS Depreciation Chart (200% declining balance method) and the Maximum Depreciation Deduction for Cars table, earlier, for the applicable tax year to compute his depreciation deductions during the recovery period. File federal and state taxes free online Bob's depreciation deductions were subject to the depreciation limits so he will have unrecovered basis at the end of the recovery period as shown in the following table. File federal and state taxes free online      MACRS     Deprec. File federal and state taxes free online Year % Amount Limit Allowed 2007 20. File federal and state taxes free online 00 $6,300 $3,060 $ 3,060 2008 32. File federal and state taxes free online 00 10,080 4,900 4,900 2009 19. File federal and state taxes free online 20 6,048 2,850 2,850 2010 11. File federal and state taxes free online 52 3,629 1,775 1,775 2011 11. File federal and state taxes free online 52 3,629 1,775 1,775 2012 5. File federal and state taxes free online 76 1,814 1,775 1,775 Total $31,500   16,135 For the correct limit, see Maximum Depreciation Deduction for Cars under “Depreciation Limits,” earlier, for the maximum amount of depreciation allowed each year. File federal and state taxes free online   At the end of 2012, Bob had an unrecovered basis in the car of $15,365 ($31,500 – $16,135). File federal and state taxes free online If Bob continued to use the car 100% for business in 2013 and later years, he can claim a depreciation deduction equal to the lesser of $1,775 or his remaining unrecovered basis. File federal and state taxes free online   If Bob's business use of the car was less than 100% during any year, his depreciation deduction would be less than the maximum amount allowable for that year. File federal and state taxes free online However, in determining his unrecovered basis in the car, he would still reduce his original basis by the maximum amount allowable as if the business use had been 100%. File federal and state taxes free online For example, if Bob had used his car 60% for business instead of 100%, his allowable depreciation deductions would have been $9,681 ($16,135 × 60%), but he still would have to reduce his basis by $16,135 to determine his unrecovered basis. File federal and state taxes free online Table 4-1. File federal and state taxes free online 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. File federal and state taxes free online ) If you claim actual expenses for your car, use the chart below to find the depreciation method and percentage to use for your 2013 return for cars placed in service in 2013. File federal and state taxes free online   First, using the left column, find the date you first placed the car in service in 2013. File federal and state taxes free online Then select the depreciation method and percentage from column (a), (b), or (c) following the rules explained in this chapter. File federal and state taxes free online For cars placed in service before 2013, you must use the same method you used on last year's return unless a decline in your business use requires you to change to the straight line method. File federal and state taxes free online Refer back to the MACRS Depreciation Chart for the year you placed the car in service. File federal and state taxes free online (See Car Used 50% or Less for Business . File federal and state taxes free online )  Multiply the unadjusted basis of your car by your business use percentage. File federal and state taxes free online Multiply the result by the percentage you found in the chart to find the amount of your depreciation deduction for 2013. File federal and state taxes free online (Also see Depreciation Limits . File federal and state taxes free online )   If you placed your car in service after September of any year and you placed other business property in service during the same year, you may have to use the Jan. File federal and state taxes free online 1—Sept. File federal and state taxes free online 30 percentage instead of the Oct. File federal and state taxes free online 1—Dec. File federal and state taxes free online 31 percentage for your car. File federal and state taxes free online               To find out if this applies to you, determine: 1) the basis of all business property you placed in service after September of that year and 2) the basis of all business property you placed in service during that entire year. File federal and state taxes free online If the basis of the property placed in service after September is not more than 40% of the basis of all property (certain property is excluded) placed in service for the entire year, use the percentage for Jan. File federal and state taxes free online 1—Sept. File federal and state taxes free online 30 for figuring depreciation for your car. File federal and state taxes free online See Which Convention Applies? in chapter 4 of Publication 946 for more details. File federal and state taxes free online               Example. File federal and state taxes free online You buy machinery (basis of $32,000) in May 2013 and a new van (basis of $20,000) in October 2013, both used 100% in your business. File federal and state taxes free online You