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

Latest Information on Tax Season and Refunds


Common Refund Questions and Answers Updated

Feb. 26, 2014

Will ordering a transcript help you determine when you’ll get your refund?

No, a tax transcript will not help you determine when you will get your refund. This is among the common myths and misconceptions that are often repeated in social media. The codes listed on tax transcripts do not provide any early insight into when a refund will be issued. The best way to check on your refund is by visiting “Where’s My Refund?” While transcripts include a lot of detailed information regarding actions taken on your account, the codes do not mean the same thing for everyone and they do not necessarily reflect how any of these actions do or do not impact the amount or timing of your refund. IRS transcripts are best and most often used to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

For more answers to common refund questions visit our 2014 Tax Season Refund Frequently Asked Questions page.

Refund Update

Feb. 21, 2014

The IRS issues more than 9 out of 10 refunds in less than 21 days from the day the IRS receives tax returns. Recent filing season data, as of Feb. 14 shows the IRS has already issued more than 31 million refunds this year. While the IRS works hard to issue refunds as quickly as possible some tax returns take longer to process than others for many reasons including when a return is incomplete, includes errors, includes Form 8379, Injured Spouse Allocation, or needs further review.

The IRS reminds taxpayers that the 21 day timeframe begins when you are notified by your preparer or tax preparation software company that the IRS has acknowledged acceptance of your tax return. Acceptance in this case means the IRS has accepted the return for processing. Further reviews may still be necessary. This year, Jan. 31 was the first day the IRS could start processing tax returns; even though you or your preparer may have submitted a return electronically before that date.

The best advice for all taxpayers is to check Where’s My Refund on IRS.gov. The Where’s My Refund web and phone tools are updated just once a day so there is no need to check more often. If we need more information to process your return, we will contact you — usually by mail. IRS phone and walk-in representatives can only research the status of a refund if it’s been 21 days or more since the return was filed electronically, more than 6 weeks since a paper return was mailed, or if Where’s My Refund? directs you to contact us.

IRS Statement on 1121
Feb. 12, 2014

Note to Taxpayers


The IRS is off to a strong start to the tax season. Through early February, millions of refunds worth billions of dollars have already been issued. There are no major issues with tax refunds or processing at this time.

Every year, especially at the start of tax season, people are concerned about getting their refunds quickly. The IRS issues nine out of 10 refunds to taxpayers in less than 21 days after the IRS receives the return. Some refunds take longer because of other factors, including IRS work to prevent refund fraud and identity theft. There are many questions about the process. The best source of information about refunds is on IRS.gov, including the YouTube video on the refund process and refund FAQ page.

Early February 1121 Information


A very small percentage of taxpayers may see an 1121 reference number if they check “Where’s My Refund?” after they initially were provided a projected refund date by the tool. The IRS is aware of this situation, and emphasizes that the small group of taxpayers who see this reference number should continue checking Where’s My Refund for an update. If we need more information to process their return, we will contact them — usually by mail.

The IRS began processing returns on Jan. 31, and we’ve already issued millions of refunds. The IRS works hard to issue refunds as quickly as possible, but as part of our effort to prevent improper payments some tax returns take longer to process than others for many reasons, such as when a return includes errors, is incomplete, or needs further review. We apologize for any confusion or inconvenience.

Q: What should taxpayers do if they receive an 1121 reference number when they check Where’s My Refund?

A: The best advice for all taxpayers is to continue checking Where’s My Refund for a refund date. If we need more information to process their return, we will contact them — usually by mail. The web and phone tools are updated just once a day so there is no need to check more often. Our phone and walk-in representatives can only research the status of a refund if it’s been 21 days or more since the return was filed electronically, more than 6 weeks since a paper return was mailed, or if Where’s My Refund? directs a taxpayer to contact us as in the case of those who see the 1121 reference number.

Q: I read in social media that a reference number 1121 means I’m being audited. Is that true?

A: No, this code is simply a reference number that our telephone representatives use to help them research your account. It does not mean the taxpayer is being audited. If the IRS needs more information to process the return, we will contact the taxpayer — usually by mail.
 

Page Last Reviewed or Updated: 14-Mar-2014

The Free Tax Extention

Free tax extention 2. Free tax extention   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. Free tax extention Amount realized on a nonrecourse debt. Free tax extention If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free tax extention The foreclosure or repossession is treated as a sale from which you may realize gain or loss. Free tax extention This is true even if you voluntarily return the property to the lender. Free tax extention If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. Free tax extention You must report this income on your return unless certain exceptions or exclusions apply. Free tax extention See chapter 1 for more details. Free tax extention Borrower's gain or loss. Free tax extention    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. Free tax extention The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). Free tax extention The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). Free tax extention For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. Free tax extention You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. Free tax extention Amount realized and ordinary income on a recourse debt. Free tax extention    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. Free tax extention The amount realized also includes any proceeds you received from the foreclosure sale. Free tax extention If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. Free tax extention You must report this income on your return unless certain exceptions or exclusions apply. Free tax extention See chapter 1 for more details. Free tax extention       Example 1. Free tax extention Tara bought a new car for $15,000. Free tax extention She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free tax extention Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. Free tax extention On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free tax extention The balance due after taking into account the payments Tara made was $10,000. Free tax extention The FMV of the car when it was repossessed was $9,000. Free tax extention On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. Free tax extention In this case, the amount Tara realizes is $9,000. Free tax extention This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. Free tax extention Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. Free tax extention She has a $6,000 nondeductible loss. Free tax extention After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). Free tax extention Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. Free tax extention Example 2. Free tax extention Lili paid $200,000 for her home. Free tax extention She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free tax extention Lili is personally liable for the mortgage loan and the house secures the loan. Free tax extention In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. Free tax extention When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free tax extention At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). Free tax extention She remained personally liable for the $8,000 balance. Free tax extention In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. Free tax extention The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). Free tax extention She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. Free tax extention Lili must also determine her gain or loss from the foreclosure. Free tax extention In this case, the amount that she realizes is $170,000. Free tax extention This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. Free tax extention Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. Free tax extention She has a $5,000 nondeductible loss. Free tax extention Table 1-1. Free tax extention Worksheet for Foreclosures and Repossessions Part 1. Free tax extention Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Free tax extention Otherwise, go to Part 2. Free tax extention 1. Free tax extention Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property   2. Free tax extention Enter the fair market value of the transferred property   3. Free tax extention Ordinary income from the cancellation of debt upon foreclosure or repossession. Free tax extention * Subtract line 2 from line 1. Free tax extention If less than zero, enter zero. Free tax extention Next, go to Part 2   Part 2. Free tax extention Gain or loss from foreclosure or repossession. Free tax extention   4. Free tax extention Enter the smaller of line 1 or line 2. Free tax extention If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. Free tax extention Enter any proceeds you received from the foreclosure sale   6. Free tax extention Add line 4 and line 5   7. Free tax extention Enter the adjusted basis of the transferred property   8. Free tax extention Gain or loss from foreclosure or repossession. Free tax extention Subtract line 7 from line 6   * The income may not be taxable. Free tax extention See chapter 1 for more details. Free tax extention Amount realized on a nonrecourse debt. Free tax extention    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. Free tax extention This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. Free tax extention Example 1. Free tax extention Tara bought a new car for $15,000. Free tax extention She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free tax extention Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. Free tax extention On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free tax extention The balance due after taking into account the payments Tara made was $10,000. Free tax extention The FMV of the car when it was repossessed was $9,000. Free tax extention The amount Tara realized on the repossession is $10,000. Free tax extention That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. Free tax extention Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. Free tax extention Tara has a $5,000 nondeductible loss. Free tax extention Example 2. Free tax extention Lili paid $200,000 for her home. Free tax extention She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free tax extention She is not personally liable for the loan, but grants the bank a mortgage. Free tax extention The bank foreclosed on the mortgage because Lili stopped making payments. Free tax extention When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free tax extention The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. Free tax extention She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. Free tax extention Lili has a $5,000 realized gain. Free tax extention See Publication 523 to figure and report any taxable amount. Free tax extention Forms 1099-A and 1099-C. Free tax extention    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. Free tax extention However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. Free tax extention The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Free tax extention For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. Free tax extention Prev  Up  Next   Home   More Online Publications