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State free file 14. State free file   Excise Taxes Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Fuels Used in FarmingBuyer of fuel, including undyed diesel fuel or undyed kerosene. State free file Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). State free file Custom application of fertilizer and pesticide. State free file Fuel not used for farming. State free file Dyed Diesel Fuel and Dyed Kerosene Fuels Used in Off-Highway Business Use Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines How To Claim a Credit or RefundCredit only. State free file Claiming a Credit Claiming a Refund Including the Credit or Refund in Income Introduction You may be eligible to claim a credit on your income tax return for the federal excise tax on certain fuels. State free file You may also be eligible to claim a quarterly refund of the fuel taxes during the year, instead of waiting to claim a credit on your income tax return. State free file Whether you can claim a credit or refund depends on whether the fuel was taxed and the purpose (nontaxable use) for which you used the fuel. State free file The nontaxable uses of fuel for which a farmer may claim a credit or refund are generally the following. State free file Use on a farm for farming purposes. State free file Off-highway business use. State free file Uses other than as a fuel in a propulsion engine, such as home use. State free file Table 14-1 presents an overview of credits and refunds that may be claimed for fuels used for the nontaxable uses listed above. State free file See Publication 510, Excise Taxes, for more information. State free file Topics - This chapter discusses: Fuels used in farming Dyed diesel fuel and dyed kerosene Fuels used in off-highway business use Fuels used for household purposes How to claim a credit or refund Including the credit or refund in income Useful Items - You may want to see: Publication 510 Excise Taxes Form (and Instructions) 720 Quarterly Federal Excise Tax Return 4136 Credit for Federal Tax Paid on Fuels 8849 Claim for Refund of Excise Taxes See chapter 16 for information about getting publications and forms. State free file Fuels Used in Farming Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming, when used on a farm in the United States for farming purposes. State free file See Table 14-1 for a list of available fuel tax credits and refunds. State free file Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes. State free file Farm. State free file   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. State free file It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. State free file A fish farm is an area where fish are grown or raised and not merely caught or harvested. State free file Table 14-1. State free file Fuel Tax Credits and Refunds at a Glance Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed. State free file Fuel Used On a Farm for Farming Purposes Off-Highway Business Use Household Use or Use Other Than as a Fuel1 Gasoline Credit only Credit or refund None Aviation gasoline Credit only None None Undyed diesel fuel and undyed kerosene Credit or refund Credit or refund2 Credit or refund2 Kerosene for use in aviation Credit or refund None None Dyed diesel fuel and dyed kerosene None None None Other Fuels (including alternative fuels)3 Credit or refund Credit or refund None 1For a use other than as fuel in a propulsion engine. State free file 2Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. State free file See Reg. State free file 48. State free file 6427-10 (b)(1) for the definition of a blocked pump. State free file 3Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under Internal Revenue Code section 4081. State free file It includes the alternative fuels: liquefied petroleum gas (LPG),“P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, any liquid fuel derived from coal (including peat) through the Fischer-Tropsch process, liquid fuel derived from biomass, liquid natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass. State free file Farming purposes. State free file   As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways. State free file To cultivate the soil or to raise or harvest any agricultural or horticultural commodity. State free file To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife. State free file To operate, manage, conserve, improve, or maintain your farm and its tools and equipment. State free file To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. State free file For this use to qualify, you must have produced more than half the commodity so treated during the tax year. State free file The more-than-one-half test applies separately to each commodity. State free file Commodity means a single raw product. State free file For example, apples and peaches are two separate commodities. State free file To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. State free file Your tree operations are incidental only if they are minor in nature when compared to the total farming operations. State free file   If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list items (1) or (2), above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. State free file Therefore, you can still claim the credit or refund for the fuel so used. State free file However, see Custom application of fertilizer and pesticide, later. State free file If the other person performs any other services for you on your farm for purposes not included in list items (1) or (2) above, no one can claim the credit or refund for fuel used on your farm for those other services. State free file Buyer of fuel, including undyed diesel fuel or undyed kerosene. State free file   If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. State free file For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used. State free file Undyed diesel fuel, undyed kerosene, and Other Fuels (including alternative fuel). State free file   Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. State free file However, see Custom application of fertilizer and pesticide, next. State free file Also see Dyed Diesel Fuel and Dyed Kerosene, later. State free file Example. State free file Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on her farm. State free file Tyler used 200 gallons of undyed diesel fuel that he purchased to perform the work on Haleigh's farm. State free file In addition, Haleigh hired contractor Lee Brown to pack and store her apple crop. State free file Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. State free file Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on her farm because it qualifies as fuel used on the farm for farming purposes. State free file No one can claim a credit for the 25 gallons used by Lee because that fuel was not used for a farming purpose included in list items (1) or (2), above. State free file In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks. State free file Custom application of fertilizer and pesticide. State free file   Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. State free file Generally, the applicator is treated as having used the fuel on a farm for farming purposes. State free file For applicators using highway vehicles, only the fuel used on the farm is exempt. State free file Fuel used traveling on the highway to and from the farm is taxable. State free file Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. State free file For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. State free file For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. State free file A sample waiver is included as Model Waiver L in the appendix of Publication 510. State free file A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. State free file To claim a credit or refund of tax, the ultimate vendor must be registered with the Internal Revenue Service at the time the claim is made. State free file However, registered ultimate vendors cannot make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes. State free file Fuel not used for farming. State free file   You do not use fuel on a farm for farming purposes when you use it in any of the following ways. State free file Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment. State free file For personal use, such as lawn mowing. State free file In processing, packaging, freezing, or canning operations. State free file In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar. State free file All-terrain vehicles (ATVs). State free file   Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. State free file Fuel used in ATVs for nonfarming purposes is not eligible for a credit or refund of the taxes. State free file If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund. State free file Dyed Diesel Fuel and Dyed Kerosene If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. State free file For example, you should not use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. State free file Excise tax applies to the fuel used by the truck on the highways. State free file In this situation, undyed (taxed) fuel should be purchased for the truck. State free file You should keep fuel records of the use of the truck on the farm for farming purposes, and for other uses. State free file You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes. State free file Penalty. State free file   A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. State free file The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. State free file After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. State free file For more information on this penalty, see Publication 510. State free file Fuels Used in Off-Highway Business Use You may be eligible to claim a credit or refund for the excise tax on fuel used in an off-highway business use. State free file Off-highway business use. State free file   This is any use of fuel in a trade or business or in an income-producing activity. State free file The use must not be in a highway vehicle registered or required to be registered for use on public highways. State free file Off-highway business use generally does not include any use in a recreational motorboat. State free file Examples. State free file   Off-highway business use includes the use of fuels in a trade or business in any of the following ways. State free file In stationary machines such as generators, compressors, power saws, and similar equipment; For cleaning ; and In forklift trucks, bulldozers, and earthmovers. State free file   Off-highway nonbusiness (taxable) use of fuel includes: use in minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment. State free file For more information, see Publication 510. State free file Fuels Used for Household Purposes or Other Than as a Fuel for Propulsion Engines You may be eligible to claim a credit or refund for the excise tax on undyed diesel fuel or kerosene used for home heating, lighting, and cooking. State free file This also applies to diesel fuel and kerosene used in a home generator to produce electricity for home use. State free file Home use of a fuel does not include use in a propulsion engine and it is not considered an off-highway business use. State free file How To Claim a Credit or Refund You may be able to claim a credit or refund of the excise tax on fuels you use for nontaxable uses. State free file The basic rules for claiming credits and refunds are listed in Table 14-2 . State free file Table 14-2. State free file Claiming a Credit or Refund of Excise Taxes This table gives the basic rules for claiming a credit or refund of excise taxes on fuels used for a nontaxable use. State free file   Credit Refund Which form to use Form 4136, Credit for Federal Tax Paid on Fuels Form 8849, Claim for Refund of Excise Taxes, and Schedule 1 (Form 8849), Nontaxable Use of Fuels Type of form Annual Quarterly When to file With your income tax return By the last day of the quarter following the last quarter included in the claim Amount of tax Any amount $750 or more1 1You may carry over an amount less than $750 to the next quarter. State free file Keep at your principal place of business all records needed to enable the IRS to verify that you are the person entitled to claim a credit or refund and the amount you claimed. State free file You do not have to use any special form, but the records should establish the following information. State free file The total number of gallons bought and used during the period covered by your claim. State free file The dates of the purchases. State free file The names and addresses of suppliers and amounts bought from each during the period covered by your claim. State free file The nontaxable use for which you used the fuel. State free file The number of gallons used for each nontaxable use. State free file It is important that your records separately show the number of gallons used for each nontaxable use that qualifies as a claim. State free file For more information about recordkeeping, see Publication 583, Starting a Business and Keeping Records. State free file Credit or refund. State free file   A credit is an amount that reduces the tax on your income tax return when you file it at the end of the year. State free file If you meet certain requirements, you may claim a refund during the year instead of waiting until you file your income tax return. State free file Credit only. State free file   You can claim the following taxes only as a credit on your income tax return. State free file Tax on gasoline and aviation gasoline you used on a farm for farming purposes. State free file Tax on fuels (including undyed diesel fuel or undyed kerosene) you used for nontaxable uses if the total for the tax year is less than $750. State free file Tax on fuel you did not include in any claim for refund previously filed for any quarter of the tax year. State free file Claiming a Credit You make a claim for a fuel tax credit on Form 4136 and attach it to your income tax return. State free file Do not claim a credit for any excise tax for which you have filed a refund claim. State free file How to claim a credit. State free file   How you claim a credit depends on whether you are an individual, partnership, corporation, S corporation, trust, or farmers' cooperative association. State free file Individuals. State free file   You claim the credit on the “Credit for federal tax on fuels” line of your Form 1040. State free file If you would not otherwise have to file an income tax return, you must do so to get a fuel tax credit. State free file Partnership. State free file   Partnerships (other than electing large partnerships) claim the credit by including a statement on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. State free file , showing each partner's share of the number of gallons of each fuel sold or used for a nontaxable use, the type of use, and the applicable credit per gallon. State free file Each partner claims the credit on his or her income tax return for the partner's share of the fuel used by the partnership. State free file An electing large partnership can claim the credit on the “Other payments” line of Form 1065-B, U. State free file S. State free file Return of Income for Electing Large Partnerships. State free file Other entities. State free file   Corporations, S corporations, farmers' cooperative associations, and trusts make the claim on the appropriate line of their income tax return. State free file When to claim a credit. State free file   You can claim a fuel tax credit on your income tax return for the year you used the fuel. State free file You may be able to make a fuel tax claim on an amended income tax return for the year you used the fuel. State free file A claim for credit or refund of an overpayment must generally be filed within the later of: Three years from the date the original return was filed, or Two years from the date the tax was paid. State free file Claiming a Refund Generally, you may claim a refund of excise taxes on Form 8849. State free file Complete and attach to Form 8849 the appropriate Form 8849 schedule(s). State free file The instructions for Form 8849 and the separate instructions for each schedule explain the requirements for making a claim for refund. State free file If you file Form 720, you can use its Schedule C for your refund claims for the quarter. State free file See the Instructions for Form 720. State free file Do not claim a refund on Form 8849 for any amount for which you have filed or will file a claim on Form 720 or Form 4136. State free file You may file a claim for refund for any quarter of your tax year for which you can claim $750 or more. State free file This amount is the excise tax on all fuels used for a nontaxable use during that quarter or any prior quarter (for which no other claim has been filed) during the tax year. State free file If you cannot claim at least $750 at the end of a quarter, you carry the amount over to the next quarter of your tax year to determine if you can claim at least $750 for that quarter. State free file If you cannot claim at least $750 at the end of the fourth quarter of your tax year, you must claim a credit on your income tax return using Form 4136. State free file Only one claim can be filed for a quarter. State free file You cannot claim a refund for excise tax on gasoline and aviation gasoline used on a farm for farming purposes. State free file You must claim a credit on your income tax return for the tax. State free file How to file a quarterly claim. State free file   File the claim for refund by filling out Schedule 1 (Form 8849) and attaching it to Form 8849. State free file Send it to the address shown in the instructions. State free file If you file Form 720, you can use its Schedule C for your refund claims. State free file See the Instructions for Form 720. State free file When to file a quarterly claim. State free file   You must file a quarterly claim by the last day of the first quarter following the last quarter included in the claim. State free file If you do not file a timely refund claim for the fourth quarter of your tax year, you will have to claim a credit for that amount on your income tax return, as discussed earlier. State free file    In most situations, the amount claimed as a credit or refund will be less than the amount deducted as fuel tax expense because the Leaking Underground Storage Tank (LUST) tax of $0. State free file 001 per gallon is generally not subject to credit or refund. State free file Including the Credit or Refund in Income Include any credit or refund of excise taxes on fuels in your gross income if you claimed the total cost of the fuel (including the excise taxes) as an expense deduction that reduced your income tax liability. State free file Which year you include a credit or refund in gross income depends on whether you use the cash or an accrual method of accounting. State free file Cash method. State free file   If you use the cash method and file a claim for refund, include the refund amount in gross income for the tax year in which you receive the refund. State free file If you claim a credit on your income tax return, include the credit amount in gross income for the tax year in which you file Form 4136. State free file If you file an amended return and claim a credit, include the credit amount in gross income for the tax year in which you receive the credit. State free file Example. State free file Sharon Brown, a farmer who uses the cash method, filed her 2012 Form 1040 on March 3, 2013. State free file On her Schedule F, she deducted the total cost of gasoline (including $110 of excise taxes) used on the farm for farming purposes. State free file Then, on Form 4136, she claimed the $110 as a credit. State free file Sharon reports the $110 as other income on line 8b of her 2013 Schedule F. State free file Accrual method. State free file   If you use an accrual method, include the amount of credit or refund in gross income for the tax year in which you used the fuels. State free file It does not matter whether you filed for a quarterly refund or claimed the entire amount as a credit. State free file Example. State free file Patty Green, a farmer who uses the accrual method, files her 2012 Form 1040 on April 15, 2013. State free file On Schedule F, she deducts the total cost of gasoline (including $155 of excise taxes) she used on the farm for farming purposes during 2012. State free file On Form 4136, Patty claims the $155 as a credit. State free file She reports the $155 as other income on line 8b of her 2012 Schedule F. State free file Prev  Up  Next   Home   More Online Publications
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State free file 15. State free file   Selling Your Home Table of Contents Reminder Introduction Useful Items - You may want to see: Main Home Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Business Use or Rental of Home Reporting the SaleSeller-financed mortgage. State free file More information. State free file Special SituationsException for sales to related persons. State free file Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. State free file  If you have not deducted all the points you paid to secure a mortgage on your old home, you may be able to deduct the remaining points in the year of the sale. State free file See Mortgage ending early under Points in chapter 23. State free file Introduction This chapter explains the tax rules that apply when you sell your main home. State free file In most cases, your main home is the one in which you live most of the time. State free file If you sold your main home in 2013, you may be able to exclude from income any gain up to a limit of $250,000 ($500,000 on a joint return in most cases). State free file See Excluding the Gain , later. State free file Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. State free file If you have gain that cannot be excluded, it is taxable. State free file Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). State free file You may also have to complete Form 4797, Sales of Business Property. State free file See Reporting the Sale , later. State free file If you have a loss on the sale, you generally cannot deduct it on your return. State free file However, you may need to report it. State free file See Reporting the Sale , later. State free file The following are main topics in this chapter. State free file Figuring gain or loss. State free file Basis. State free file Excluding the gain. State free file Ownership and use tests. State free file Reporting the sale. State free file Other topics include the following. State free file Business use or rental of home. State free file Recapturing a federal mortgage subsidy. State free file Useful Items - You may want to see: Publication 523 Selling Your Home 530 Tax Information for Homeowners 547 Casualties, Disasters, and Thefts Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 982 Reduction of Tax Attributes Due to Discharge of Indebtedness 8828 Recapture of Federal Mortgage Subsidy 8949 Sales and Other Dispositions of Capital Assets Main Home This section explains the term “main home. State free file ” 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. State free file To exclude gain under the rules of this chapter, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. State free file Land. State free file   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. State free file However, if you sell vacant land used as part of your main home and that is adjacent to it, you may be able to exclude the gain from the sale under certain circumstances. State free file See Vacant land under Main Home in Publication 523 for more information. State free file Example. State free file You buy a piece of land and move your main home to it. State free file Then you sell the land on which your main home was located. State free file This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. State free file More than one home. State free file   If you have more than one home, you can exclude gain only from the sale of your main home. State free file You must include in income gain from the sale of any other home. State free file If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time during the year. State free file Example 1. State free file You own two homes, one in New York and one in Florida. State free file 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. State free file In the absence of facts and circumstances indicating otherwise, the New York home is your main home. State free file You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. State free file Example 2. State free file You own a house, but you live in another house that you rent. State free file The rented house is your main home. State free file Example 3. State free file You own two homes, one in Virginia and one in New Hampshire. State free file In 2009 and 2010, you lived in the Virginia home. State free file In 2011 and 2012, you lived in the New Hampshire home. State free file In 2013, you lived again in the Virginia home. State free file Your main home in 2009, 2010, and 2013 is the Virginia home. State free file Your main home in 2011 and 2012 is the New Hampshire home. State free file You would be eligible to exclude gain from the sale of either home (but not both) in 2013. State free file Property used partly as your main home. State free file   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. State free file For details, see Business Use or Rental of Home , later. State free file 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. State free file Subtract the adjusted basis from the amount realized to get your gain or loss. State free file     Selling price     − Selling expenses       Amount realized       Amount realized     − Adjusted basis       Gain or loss   Selling Price The selling price is the total amount you receive for your home. State free file 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. State free file Payment by employer. State free file   You may have to sell your home because of a job transfer. State free file 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. State free file 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. State free file Option to buy. State free file   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. State free file If the option is not exercised, you must report the amount as ordinary income in the year the option expires. State free file Report this amount on Form 1040, line 21. State free file Form 1099-S. State free file   If you received Form 1099-S, Proceeds From Real Estate Transactions, box 2 (Gross proceeds) should show the total amount you received for your home. State free file   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. State free file Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. State free file Amount Realized The amount realized is the selling price minus selling expenses. State free file Selling expenses. State free file   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. State free file ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. State free file This adjusted basis must be determined before you can figure gain or loss on the sale of your home. State free file For information on how to figure your home's adjusted basis, see Determining Basis , later. State free file Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. State free file Gain on sale. State free file   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, in most cases is taxable. State free file Loss on sale. State free file   If the amount realized is less than the adjusted basis, the difference is a loss. State free file A loss on the sale of your main home cannot be deducted. State free file Jointly owned home. State free file   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. State free file Separate returns. State free file   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. State free file Your ownership interest is generally determined by state law. State free file Joint owners not married. State free file   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. State free file Each of you applies the rules discussed in this chapter on an individual basis. State free file Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. State free file Foreclosure or repossession. State free file   If your home was foreclosed on or repossessed, you have a disposition. State free file See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. State free file Abandonment. State free file   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. State free file Trading (exchanging) homes. State free file   If you trade your old home for another home, treat the trade as a sale and a purchase. State free file Example. State free file You owned and lived in a home with an adjusted basis of $41,000. State free file 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. State free file This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). State free file 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). State free file Transfer to spouse. State free file   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. State free file This is true even if you receive cash or other consideration for the home. State free file As a result, the rules in this chapter do not apply. State free file More information. State free file   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. State free file Involuntary conversion. State free file   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. State free file 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 . State free file Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. State free file Your basis in your home is determined by how you got the home. State free file Generally, your basis is its cost if you bought it or built it. State free file If you got it in some other way (inheritance, gift, etc. State free file ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. State free file While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. State free file 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. State free file See Adjusted Basis , later. State free file You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. State free file Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. State free file Purchase. State free file   If you bought your home, your basis is its cost to you. State free file This includes the purchase price and certain settlement or closing costs. State free file 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. State free file If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. State free file Settlement fees or closing costs. State free file   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. State free file 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. State free file 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). State free file    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. State free file It also lists some settlement costs that cannot be included in basis. State free file   Also see Publication 523 for additional items and a discussion of basis other than cost. State free file Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. State free file To figure your adjusted basis, you can use Worksheet 1 in Publication 523. State free file Do not use Worksheet 1 if you acquired an interest in your home from a decedent who died in 2010 and whose executor filed Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. State free file Increases to basis. State free file   These include the following. State free file Additions and other improvements that have a useful life of more than 1 year. State free file Special assessments for local improvements. State free file Amounts you spent after a casualty to restore damaged property. State free file Improvements. State free file   These add to the value of your home, prolong its useful life, or adapt it to new uses. State free file You add the cost of additions and other improvements to the basis of your property. State free file   For example, putting a recreation room or another bathroom in your unfinished basement, putting up a new fence, putting in new plumbing or wiring, putting on a new roof, or paving your unpaved driveway are improvements. State free file An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. State free file Repairs. State free file   These maintain your home in good condition but do not add to its value or prolong its life. State free file You do not add their cost to the basis of your property. State free file   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. State free file Decreases to basis. State free file   These include the following. State free file Discharge of qualified principal residence indebtedness that was excluded from income. State free file Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. State free file For details, see Publication 4681. State free file Gain you postponed from the sale of a previous home before May 7, 1997. State free file Deductible casualty losses. State free file Insurance payments you received or expect to receive for casualty losses. State free file Payments you received for granting an easement or right-of-way. State free file Depreciation allowed or allowable if you used your home for business or rental purposes. State free file Energy-related credits allowed for expenditures made on the residence. State free file (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. State free file ) Adoption credit you claimed for improvements added to the basis of your home. State free file Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. State free file 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. State free file 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. State free file District of Columbia first-time homebuyer credit (allowed on the purchase of a principal residence in the District of Columbia beginning on August 5, 1997 and before January 1, 2012). State free file General sales taxes (allowed beginning 2004 and ending before 2014) claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. State free file Discharges of qualified principal residence indebtedness. State free file   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. State free file This exclusion applies to discharges made after 2006 and before 2014. State free file If you choose to exclude this income, you must reduce (but not below zero) the basis of the principal residence by the amount excluded from your gross income. State free file   File Form 982 with your tax return. State free file See the form's instructions for detailed information. State free file Recordkeeping. State free file You should keep records to prove your home's adjusted basis. State free file 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. State free file 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. State free file Keep records proving the basis of both homes as long as they are needed for tax purposes. State free file The records you should keep include: Proof of the home's purchase price and purchase expenses, Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis, Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain, Any Form 982 you filed to report any discharge of qualified principal residence indebtedness, Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997, and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. State free file Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. State free file 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. State free file To qualify, you must meet the ownership and use tests described later. State free file 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. State free file You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. State free file If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. State free file See Publication 505, Tax Withholding and Estimated Tax. State free file 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. State free file You meet the ownership test. State free file You meet the use test. State free file During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. State free file For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. State free file 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 . State free file Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. State free file 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). State free file Exception. State free file   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. State free file However, the maximum amount you may be able to exclude will be reduced. State free file See Reduced Maximum Exclusion , later. State free file Example 1—home owned and occupied for at least 2 years. State free file Mya bought and moved into her main home in September 2011. State free file She sold the home at a gain in October 2013. State free file 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. State free file She meets the ownership and use tests. State free file Example 2—ownership test met but use test not met. State free file Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. State free file He later sold the home for a gain. State free file He owned the home during the entire 5-year period ending on the date of sale. State free file He meets the ownership test but not the use test. State free file He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). State free file 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. State free file 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. State free file Temporary absence. State free file   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. State free file The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. State free file Example 1. State free file David Johnson, who is single, bought and moved into his home on February 1, 2011. State free file Each year during 2011 and 2012, David left his home for a 2-month summer vacation. State free file David sold the house on March 1, 2013. State free file Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. State free file 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. State free file Example 2. State free file Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. State free file He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. State free file On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. State free file Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. State free file He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. State free file Ownership and use tests met at different times. State free file   You can meet the ownership and use tests during different 2-year periods. State free file However, you must meet both tests during the 5-year period ending on the date of the sale. State free file Example. State free file Beginning in 2002, Helen Jones lived in a rented apartment. State free file The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. State free file In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. State free file On July 12, 2013, while still living in her daughter's home, she sold her condominium. State free file 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. State free file She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). State free file She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). State free file 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. State free file Cooperative apartment. State free file   If you sold stock as a tenant-stockholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitles you to occupy as your main home for at least 2 years. State free file Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. State free file Exception for individuals with a disability. State free file   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. State free file 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. State free file 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. State free file Previous home destroyed or condemned. State free file   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. State free file This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. State free file 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. State free file Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. State free file   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on “qualified official extended duty” as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. State free file You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on "qualified official extended duty" or as an enrolled volunteer or volunteer leader of the Peace Corps. State free file 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. State free file   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. State free file For more information about the suspension of the 5-year test period, see Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps in Publication 523. State free file 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. State free file (But see Special rules for joint returns , next. State free file ) Special rules for joint returns. State free file   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. State free file You are married and file a joint return for the year. State free file Either you or your spouse meets the ownership test. State free file Both you and your spouse meet the use test. State free file 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. State free file 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. State free file For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. State free file Example 1—one spouse sells a home. State free file Emily sells her home in June 2013 for a gain of $300,000. State free file She marries Jamie later in the year. State free file She meets the ownership and use tests, but Jamie does not. State free file Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. State free file The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. State free file Example 2—each spouse sells a home. State free file 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. State free file He meets the ownership and use tests on his home, but Emily does not. State free file Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. State free file However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. State free file Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. State free file 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. State free file Sale of main home by surviving spouse. State free file   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. State free file   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. State free file The sale or exchange took place after 2008. State free file The sale or exchange took place no more than 2 years after the date of death of your spouse. State free file You have not remarried. State free file You and your spouse met the use test at the time of your spouse's death. State free file You or your spouse met the ownership test at the time of your spouse's death. State free file Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. State free file Example. State free file   Harry owned and used a house as his main home since 2009. State free file Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. State free file Harry died on August 15, 2013, and Wilma inherited the property. State free file Wilma sold the property on September 3, 2013, at which time she had not remarried. State free file 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. State free file Home transferred from spouse. State free file   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. State free file Use of home after divorce. State free file   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. State free file 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. State free file 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. State free file In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. State free file A change in place of employment. State free file Health. State free file Unforeseen circumstances. State free file Unforeseen circumstances. State free file   The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home. State free file   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. State free file 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. State free file But you must meet the ownership and use tests. State free file Periods of nonqualified use. State free file   In most cases, gain from the sale or exchange of your main home will not qualify for the exclusion to the extent that the gains are allocated to periods of nonqualified use. State free file Nonqualified use is any period after 2008 during which neither you nor your spouse (or your former spouse) used the property as a main home with the following exceptions. State free file Exceptions. State free file   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. State free file The gain resulting from the sale of the property is allocated between qualified and nonqualified use periods based on the amount of time the property was held for qualified and nonqualified use. State free file Gain from the sale or exchange of a main home allocable to periods of qualified use will continue to qualify for the exclusion for the sale of your main home. State free file Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. State free file Calculation. State free file   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain by the following fraction:   Total nonqualified use during the period of ownership after 2008      Total period of ownership     This calculation can be found in Worksheet 2, line 10, in Publication 523. State free file Example 1. State free file On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. State free file 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. State free file The house was rented from June 1, 2009, to March 31, 2011. State free file Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. State free file 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. State free file 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. State free file Five Year Period Used as  Home Used as  Rental 1/31/08 – 5/31/09 16 months       6/1/09 – 3/31/11   22 months 4/1/11 – 1/31/13 22 months         38 months 22 months During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. State free file Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. State free file 321. State free file To figure her gain attributable to the period of nonqualified use, she multiplies $190,000 (the gain not attributable to the $10,000 depreciation deduction) by 0. State free file 321. State free file Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. State free file Example 2. State free file William owned and used a house as his main home from 2007 through 2010. State free file On January 1, 2011, he moved to another state. State free file He rented his house from that date until April 30, 2013, when he sold it. State free file 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. State free file He must report the sale on Form 4797 because it was rental property at the time of sale. State free file 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. State free file Because he met the ownership and use tests, he can exclude gain up to $250,000. State free file 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. State free file Depreciation after May 6, 1997. State free file   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. State free file 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. State free file See Publication 544 for more information. State free file Property used partly for business or rental. State free file   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. State free file Reporting the Sale Do not report the 2013 sale of your main home on your tax return unless: You have a gain and do not qualify to exclude all of it, You have a gain and choose not to exclude it, or You received Form 1099-S. State free file If any of these conditions apply, report the entire gain or loss. State free file For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. State free file If you used the home for business or to produce rental income, you may have to use Form 4797 to report the sale of the business or rental part (or the sale of the entire property if used entirely for business or rental). State free file See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. State free file Installment sale. State free file    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. State free file These sales are called “installment sales. State free file ” If you finance the buyer's purchase of your home yourself instead of having the buyer get a loan or mortgage from a bank, you probably have an installment sale. State free file You may be able to report the part of the gain you cannot exclude on the installment basis. State free file    Use Form 6252, Installment Sale Income, to report the sale. State free file Enter your exclusion on line 15 of Form 6252. State free file Seller-financed mortgage. State free file   If you sell your home and hold a note, mortgage, or other financial agreement, the payments you receive in most cases consist of both interest and principal. State free file You must separately report as interest income the interest you receive as part of each payment. State free file If the buyer of your home uses the property as a main or second home, you must also report the name, address, and social security number (SSN) of the buyer on line 1 of Schedule B (Form 1040A or 1040). State free file The buyer must give you his or her SSN, and you must give the buyer your SSN. State free file Failure to meet these requirements may result in a $50 penalty for each failure. State free file If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. State free file More information. State free file   For more information on installment sales, see Publication 537, Installment Sales. State free file Special Situations The situations that follow may affect your exclusion. State free file Sale of home acquired in a like-kind exchange. State free file   You cannot claim the exclusion if: You acquired your home in a like-kind exchange (also known as a section 1031 exchange), or your basis in your home is determined by reference to the basis of the home in the hands of the person who acquired the property in a like-kind exchange (for example, you received the home from that person as a gift), and You sold the home during the 5-year period beginning with the date your home was acquired in the like-kind exchange. State free file Gain from a like-kind exchange is not taxable at the time of the exchange. State free file This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. State free file To defer gain from a like-kind exchange, you must have exchanged business or investment property for business or investment property of a like kind. State free file For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. State free file Home relinquished in a like-kind exchange. State free file   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. State free file Expatriates. State free file   You cannot claim the exclusion if the expatriation tax applies to you. State free file The expatriation tax applies to certain U. State free file S. State free file citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). State free file For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. State free file S. State free file Tax Guide for Aliens. State free file Home destroyed or condemned. State free file   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. State free file   Any part of the gain that cannot be excluded (because it is more than the maximum exclusion) can be postponed under the rules explained in: Publication 547, in the case of a home that was destroyed, or Publication 544, chapter 1, in the case of a home that was condemned. State free file Sale of remainder interest. State free file   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. State free file If you make this choice, you cannot choose to exclude gain from your sale of any other interest in the home that you sell separately. State free file Exception for sales to related persons. State free file   You cannot exclude gain from the sale of a remainder interest in your home to a related person. State free file Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. State free file ), and lineal descendants (children, grandchildren, etc. State free file ). State free file Related persons also include certain corporations, partnerships, trusts, and exempt organizations. State free file Recapturing (Paying Back) a Federal Mortgage Subsidy If you financed your home under a federally subsidized program (loans from tax-exempt qualified mortgage bonds or loans with mortgage credit certificates), you may have to recapture all or part of the benefit you received from that program when you sell or otherwise dispose of your home. State free file You recapture the benefit by increasing your federal income tax for the year of the sale. State free file You may have to pay this recapture tax even if you can exclude your gain from income under the rules discussed earlier; that exclusion does not affect the recapture tax. State free file Loans subject to recapture rules. State free file   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. State free file The recapture also applies to assumptions of these loans. State free file When recapture applies. State free file   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. State free file You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. State free file Your income for the year of disposition is more than that year's adjusted qualifying income for your family size for that year (related to the income requirements a person must meet to qualify for the federally subsidized program). State free file When recapture does not apply. State free file   Recapture does not apply in any of the following situations. State free file Your mortgage loan was a qualified home improvement loan (QHIL) of not more than $15,000 used for alterations, repairs, and improvements that protect or improve the basic livability or energy efficiency of your home. State free file Your mortgage loan was a QHIL of not more than $150,000 in the case of a QHIL used to repair damage from Hurricane Katrina to homes in the hurricane disaster area; a QHIL funded by a qualified mortgage bond that is a qualified Gulf Opportunity Zone Bond; or a QHIL for an owner-occupied home in the Gulf Opportunity Zone (GO Zone), Rita GO Zone, or Wilma GO Zone. State free file For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. State free file Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. State free file The home is disposed of as a result of your death. State free file You dispose of the home more than 9 years after the date you closed your mortgage loan. State free file You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. State free file You dispose of the home at a loss. State free file Your home is destroyed by a casualty, and you replace it on its original site within 2 years after the end of the tax year when the destruction happened. State free file The replacement period is extended for main homes destroyed in a federally declared disaster area, a Midwestern disaster area, the Kansas disaster area, and the Hurricane Katrina disaster area. State free file For more information, see Replacement Period in Publication 547. State free file You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). State free file Notice of amounts. State free file   At or near the time of settlement of your mortgage loan, you should receive a notice that provides the federally subsidized amount and other information you will need to figure your recapture tax. State free file How to figure and report the recapture. State free file    The recapture tax is figured on Form 8828. State free file If you sell your home and your mortgage is subject to recapture rules, you must file Form 8828 even if you do not owe a recapture tax. State free file Attach Form 8828 to your Form 1040. State free file For more information, see Form 8828 and its instructions. State free file Prev  Up  Next   Home   More Online Publications