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File Taxes Electronically 2011

File taxes electronically 2011 Publication 971 - Additional Material Table of Contents How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). File taxes electronically 2011 Questions & AnswersThis section answers questions commonly asked by taxpayers about innocent spouse relief. File taxes electronically 2011 . File taxes electronically 2011 What is joint and several liability? . File taxes electronically 2011 How can I get relief from joint and several liability? . File taxes electronically 2011 What are the rules for innocent spouse relief? . File taxes electronically 2011 What are erroneous items? . File taxes electronically 2011 What is an understated tax? . File taxes electronically 2011 Will I qualify for innocent spouse relief in any situation where there is an understated tax? . File taxes electronically 2011 What are the rules for separation of liability relief? . File taxes electronically 2011 Why would a request for separation of liability relief be denied? . File taxes electronically 2011 What are the rules for equitable relief? . File taxes electronically 2011 How do state community property laws affect my ability to qualify for relief? . File taxes electronically 2011 How do I request relief? . File taxes electronically 2011 When should I file Form 8857? . File taxes electronically 2011 Where should I file Form 8857? . File taxes electronically 2011 I am currently undergoing an examination of my return. File taxes electronically 2011 How do I request innocent spouse relief? . File taxes electronically 2011 What if the IRS has given me notice that it will levy my account for the tax liability and I decide to request relief? . File taxes electronically 2011 What is injured spouse relief? . File taxes electronically 2011 What is joint and several liability? When you file a joint income tax return, the law makes both you and your spouse responsible for the entire tax liability. File taxes electronically 2011 This is called joint and several liability. File taxes electronically 2011 Joint and several liability applies not only to the tax liability you show on the return but also to any additional tax liability the IRS determines to be due, even if the additional tax is due to the income, deductions, or credits of your spouse or former spouse. File taxes electronically 2011 You remain jointly and severally liable for taxes, and the IRS still can collect from you, even if you later divorce and the divorce decree states that your former spouse will be solely responsible for the tax. File taxes electronically 2011 There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. File taxes electronically 2011 ” Each type has different requirements. File taxes electronically 2011 They are explained separately below. File taxes electronically 2011 To qualify for innocent spouse relief, you must meet all of the following conditions. File taxes electronically 2011 You must have filed a joint return which has an understated tax. File taxes electronically 2011 The understated tax must be due to erroneous items of your spouse (or former spouse). File taxes electronically 2011 You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. File taxes electronically 2011 Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. File taxes electronically 2011 You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. File taxes electronically 2011 You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. File taxes electronically 2011 For example, you reported total tax on your 2008 return of $2,500. File taxes electronically 2011 IRS determined in an audit of your 2008 return that the total tax should be $3,000. File taxes electronically 2011 You have a $500 understated tax. File taxes electronically 2011 No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 How can I get relief from joint and several liability? There are three types of relief for filers of joint returns: “innocent spouse relief,” “separation of liability relief,” and “equitable relief. File taxes electronically 2011 ” Each type has different requirements. File taxes electronically 2011 They are explained separately below. File taxes electronically 2011 To qualify for innocent spouse relief, you must meet all of the following conditions. File taxes electronically 2011 You must have filed a joint return which has an understated tax. File taxes electronically 2011 The understated tax must be due to erroneous items of your spouse (or former spouse). File taxes electronically 2011 You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. File taxes electronically 2011 Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. File taxes electronically 2011 You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. File taxes electronically 2011 You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. File taxes electronically 2011 For example, you reported total tax on your 2008 return of $2,500. File taxes electronically 2011 IRS determined in an audit of your 2008 return that the total tax should be $3,000. File taxes electronically 2011 You have a $500 understated tax. File taxes electronically 2011 No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 What are the rules for innocent spouse relief? To qualify for innocent spouse relief, you must meet all of the following conditions. File taxes electronically 2011 You must have filed a joint return which has an understated tax. File taxes electronically 2011 The understated tax must be due to erroneous items of your spouse (or former spouse). File taxes electronically 2011 You must establish that at the time you signed the joint return, you did not know, and had no reason to know, that there was an understated tax. File taxes electronically 2011 Taking into account all of the facts and circumstances, it would be unfair to hold you liable for the understated tax. File taxes electronically 2011 You must request relief within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. File taxes electronically 2011 You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. File taxes electronically 2011 For example, you reported total tax on your 2008 return of $2,500. File taxes electronically 2011 IRS determined in an audit of your 2008 return that the total tax should be $3,000. File taxes electronically 2011 You have a $500 understated tax. File taxes electronically 2011 No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 What are “erroneous items”? Erroneous items are any deductions, credits, or bases that are incorrectly stated on the return, and any income that is not properly reported on the return. File taxes electronically 2011 You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. File taxes electronically 2011 For example, you reported total tax on your 2008 return of $2,500. File taxes electronically 2011 IRS determined in an audit of your 2008 return that the total tax should be $3,000. File taxes electronically 2011 You have a $500 understated tax. File taxes electronically 2011 No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 What is an “understated tax”? You have an understated tax if the IRS determined that your total tax should be more than the amount actually shown on your return. File taxes electronically 2011 For example, you reported total tax on your 2008 return of $2,500. File taxes electronically 2011 IRS determined in an audit of your 2008 return that the total tax should be $3,000. File taxes electronically 2011 You have a $500 understated tax. File taxes electronically 2011 No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 Will I qualify for innocent spouse relief in any situation where there is an understated tax? No. File taxes electronically 2011 There are many situations in which you may owe tax that is related to your spouse (or former spouse), but not be eligible for innocent spouse relief. File taxes electronically 2011 For example, you and your spouse file a joint return on which you report $10,000 of income and deductions, but you knew that your spouse was not reporting $5,000 of dividends. File taxes electronically 2011 You are not eligible for innocent spouse relief because you have knowledge of the understated tax. File taxes electronically 2011 Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 What are the rules for separation of liability relief? Under this type of relief, you allocate (separate) the understated tax (plus interest and penalties) on your joint return between you and your spouse (or former spouse). File taxes electronically 2011 The understated tax allocated to you is generally the amount you are responsible for. File taxes electronically 2011 To qualify for separation of liability relief, you must have filed a joint return and meet either of the following requirements at the time you file Form 8857. File taxes electronically 2011 You are no longer married to, or are legally separated from, the spouse with whom you filed the joint return for which you are requesting relief. File taxes electronically 2011 (Under this rule, you are no longer married if you are widowed. File taxes electronically 2011 ) You were not a member of the same household as the spouse with whom you filed the joint return at any time during the 12-month period ending on the date you file Form 8857. File taxes electronically 2011 In addition to the above requirements, you must file a Form 8857 within 2 years after the date on which the IRS first began collection activity against you after July 22, 1998. File taxes electronically 2011 Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 Why would a request for separation of liability relief be denied? Even if you meet the requirements listed earlier, a request for separation of liability relief will not be granted in the following situations. File taxes electronically 2011 The IRS proves that you and your spouse (or former spouse) transferred assets to one another as part of a fraudulent scheme. File taxes electronically 2011 The IRS proves that at the time you signed your joint return, you had actual knowledge of any erroneous items giving rise to the deficiency that are allocable to your spouse (or former spouse). File taxes electronically 2011 Your spouse (or former spouse) transferred property to you to avoid tax or the payment of tax. File taxes electronically 2011 Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 What are the rules for equitable relief? Equitable relief is only available if you meet all of the following conditions. File taxes electronically 2011 You do not qualify for innocent spouse relief, separation of liability relief, or relief from liability arising from community property law. File taxes electronically 2011 You have an understated tax or underpaid tax. File taxes electronically 2011 See Note later. File taxes electronically 2011 You did not pay the tax. File taxes electronically 2011 However, see Refunds , earlier, for exceptions. File taxes electronically 2011 The IRS determines that it is unfair to hold you liable for the understated or underpaid tax taking into account all the facts and circumstances. File taxes electronically 2011 You and your spouse (or former spouse) did not transfer assets to one another as a part of a fraudulent scheme. File taxes electronically 2011 Your spouse (or former spouse) did not transfer property to you for the main purpose of avoiding tax or the payment of tax. File taxes electronically 2011 You did not file or fail to file your return with the intent to commit fraud. File taxes electronically 2011 The income tax liability for which you seek relief is attributable to your spouse (or former spouse) with whom you filed the joint return. File taxes electronically 2011 For exceptions to this condition, see item (8) under Conditions for Getting Equitable Relief , earlier. File taxes electronically 2011 You timely file Form 8857 as explained earlier in Exception for equitable relief under How To Request Relief. File taxes electronically 2011 Note. File taxes electronically 2011 Unlike innocent spouse relief or separation of liability relief, if you qualify for equitable relief, you can also get relief from an underpaid tax. File taxes electronically 2011 (An underpaid tax is tax that is properly shown on the return, but has not been paid. File taxes electronically 2011 ) Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or resume collecting from you. File taxes electronically 2011 The 10-year period will be increased by the amount of time your request for relief was pending plus 60 days. File taxes electronically 2011 See Publication 594 for more information. File taxes electronically 2011 Injured spouse relief is different from innocent spouse relief. File taxes electronically 2011 When a joint return is filed and the refund is used to pay one spouse's past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or federal non-tax debt, such as a student loan, the other spouse may be considered an injured spouse. File taxes electronically 2011 The injured spouse can get back his or her share of the joint overpayment using Form 8379, Injured Spouse Allocation. File taxes electronically 2011 You are considered an injured spouse if: You are not legally obligated to pay the past-due amount, and You meet any of the following conditions: You made and reported tax payments (such as federal income tax withholding or estimated tax payments). File taxes electronically 2011 You had earned income (such as wages, salaries, or self-employment income) and claimed the earned income credit or the additional child tax credit. File taxes electronically 2011 You claimed a refundable tax credit, such as the health coverage tax credit or the refundable credit for prior year minimum tax. File taxes electronically 2011 Note. File taxes electronically 2011 If your residence was in a community property state at any time during the year, you may file Form 8379 even if only item (1) above applies. File taxes electronically 2011 . File taxes electronically 2011 How do state community property laws affect my ability to qualify for relief? Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. File taxes electronically 2011 Generally, community property laws require you to allocate community income and expenses equally between both spouses. File taxes electronically 2011 However, community property laws are not taken into account in determining whether an item belongs to you or to your spouse (or former spouse) for purposes of requesting any relief from liability. File taxes electronically 2011      File Form 8857, Request for Innocent Spouse Relief, to ask the IRS for relief. File taxes electronically 2011 You must file an additional Form 8857 if you are requesting relief for more than three years. File taxes electronically 2011 If you are requesting innocent spouse relief or separation of liability relief, file Form 8857 no later than two years after the date on which the IRS first began collection activities against you after July 22, 1998. File taxes electronically 2011 If you are requesting equitable relief, see Exception for equitable relief. File taxes electronically 2011 under How To Request Relief, earlier, for when to file Form 8857. File taxes electronically 2011 If you are requesting relief from liability arising from community property law, see How and When To Request Relief under Community Property Laws, earlier, for when to file Form 8857. File taxes electronically 2011 Use the address or fax number shown in the Instructions for Form 8857. File taxes electronically 2011 File Form 8857 at the address or send it to the fax number shown in the Instructions for Form 8857. File taxes electronically 2011 Do not file it with the employee assigned to examine your return. File taxes electronically 2011 Generally, the IRS has 10 years to collect an amount you owe. File taxes electronically 2011 This is the collection statute of limitations. File taxes electronically 2011 By law, the IRS is not allowed to collect from you after the 10-year period ends. File taxes electronically 2011 If you request relief for any tax year, the IRS cannot collect from you for that year while your request is pending. File taxes electronically 2011 But interest and penalties continue to accrue. File taxes electronically 2011 Your request is generally considered pending from the date the IRS receives your Form 8857 until the date your request is resolved. File taxes electronically 2011 This includes the time the Tax Court is considering your request. File taxes electronically 2011 After your case is resolved, the IRS can begin or
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Affordable Care Act Tax Provisions

Check out the new Affordable Care Act Tax Provisions Home Page

Información en Español: Disposiciones de La Ley del Cuidado de Salud de Bajo Precio
 

Update

The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014. If you are seeking information about how to obtain health care coverage or financial assistance to purchase health care coverage for you and your family, visit the Health and Human Services website, HealthCare.gov.

Effect of Sequestration on Small Business Health Care Tax Credit

Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. This means that refund payments processed on or after Oct.1, 2013, and on or before Sept. 30, 2014, to a Section 45R applicant will be reduced by the fiscal year 2014 sequestration rate of 7.2 percent, irrespective of when the original or amended tax return was received by the IRS. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.

Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.

IRC §7216, Disclosure or Use of Information by Tax Return Preparers

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Net Investment Income Tax

A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. On Nov. 26, 2013, the IRS and the Treasury Department issued final regulations, which provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. In addition, on Nov. 26, 2013, the IRS and the Treasury Department issued proposed regulations on the computation of net investment income as it relates to certain specific types of property. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.

Additional Medicare Tax

A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. On Nov. 26, 2013, the IRS and the Department of the Treasury issued final regulations which provide guidance for employers and individuals relating to the implementation of Additional Medicare Tax, including the requirement to withhold Additional Medicare Tax on certain wages and compensation, the requirement to report Additional Medicare Tax, and the employer process for adjusting underpayments and overpayments of Additional Medicare Tax. In addition, the regulations provide guidance on the employer and individual processes for filing a claim for refund for an overpayment of Additional Medicare Tax. For additional information on the Additional Medicare Tax, see our questions and answers.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Coverage by Employers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on employer health insurance coverage information reporting. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45, announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Information Reporting on Health Coverage by Insurers

On March 5, 2014, the Department of the Treasury and IRS issued final regulations on minimum essential coverage information reporting. The information reporting is to be provided by health insurance issuers, certain sponsors of self-insured plans, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 announcing transition relief for 2014 from this annual information reporting. Learn more about this reporting requirement by reading the fact sheet issued by the U.S. Department of the Treasury.

Disclosure of Return Information

On Aug. 13, 2013, the Department of the Treasury and the IRS issued final regulations with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs. For additional information on the final regulations, see our questions and answers.

Small Business Health Care Tax Credit

This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On Aug. 23, 2013, the Department of Treasury and the IRS issued proposed regulations, which include information on the transition of eligibility for the credit and requiring the purchase of insurance coverage through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). Additionally, IRS Notice 2014-06 provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.

Application of the Affordable Care Act to Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements

The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.  

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs.

On Jan. 9, 2014, DOL and HHS issued FAQs that addressed, among other things, future rules relating to excepted benefits.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5. Additionally, Notice 2013-57 provides information about the definition of preventive care for purposes of high deductible health plans associated with HSAs. 

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules. On Oct. 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements. Learn more by reading the news release issued by the U.S. Department of the Treasury.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain health FSAs.   

Medical Device Excise Tax

On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on IRS.gov.

Changes to Itemized Deduction for Medical Expenses

Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from Jan. 1, 2013, to Dec. 31, 2016, for individuals age 65 and older and their spouses. For additional information, see our questions and answers.

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations, which provide guidance for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit, and for Marketplaces that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations on the premium tax credit affordability test for related individuals. On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Additionally, Notice 2013-41, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high-risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. On June 28, 2013, the Department of the Treasury and IRS issued proposed regulations on the new reporting requirements for Marketplaces. Notice 2014-23 was issued on March 26, 2014, and allows certain victims of domestic abuse to claim the premium tax credit while filing a return using the Married Filing Separately filing status for the 2014 calendar year. For more information on the credit, see our premium tax credit page and our questions and answers.

Individual Shared Responsibility Provision

Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On Aug. 27, 2013, the Department of the Treasury and the IRS issued final regulations on the Individual Shared Responsibility provision. On Jan. 23, 2014, the Department of the Treasury and the IRS issued proposed regulations addressing several issues that were identified in the preamble to the final regulations. In particular, the proposed regulations provide that certain limited-benefit Medicaid and TRICARE coverage is not minimum essential coverage. The proposed regulations also address the treatment of health reimbursement arrangements and wellness program incentives for purposes of determining the exemption for individuals who cannot afford employer-sponsored coverage. Comments are due April 28, 2014, and may be submitted electronically, by mail or hand delivered to the IRS. Additionally, because individuals may not be aware that these limited-benefit government health programs are not minimum essential coverage at the time of enrollment, Notice 2014-10, issued on Jan. 23, 2014, provides transition relief from the shared responsibility payment for months in 2014 in which individuals have certain Medicaid coverage or limited-benefit coverage under chapter 55 of title 10, U.S.C. For additional information on the Individual Shared Responsibility provision, the final regulations and Notice 2013-42, see our ISRP page and questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014.

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.

Adoption Credit

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information. 

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On March 19, 2013, HHS, DOL and IRS issued proposed regulations on the ninety-day waiting period limitation.. 

More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 

Annual Fee on Health Insurance Providers

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks.

For additional information visit our Affordable Care Act Provision 9010 - Health Insurance Providers Fee page

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 and Notice 2011-52). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations and proposed regulations providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance. Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of section 501(r) will be excused.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid. On Aug. 5, 2013, the IRS issued Notice 2013-51, which provides additional guidance on the branded prescription drug fee for the 2014 fee year. For information on the fee for the 2012 fee year and for the 2013 fee year, see Notice 2011-92 and Notice 2012-74.

For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012. 

On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers (amended section 162(m))

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On April 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. 

Employer Shared Responsibility Payment

The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45. For additional transition relief generally applicable to 2015, see the preamble to the final regulations.  

Patient-Centered Outcomes Research Institute Fee

The Affordable Care Act imposes the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Department of the Treasury have issued final regulations on this fee. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summaryForm 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee.

Retiree Drug Subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.

For More Information

For tips, fact sheets, questions and answers, videos and more, see our Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance page.

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Page Last Reviewed or Updated: 26-Mar-2014

 

The File Taxes Electronically 2011

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