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2008 Amended Tax Return

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2008 Amended Tax Return

2008 amended tax return Publication 515 - Main Content Table of Contents Withholding of TaxWithholding Agent Withholding and Reporting Obligations Persons Subject to NRA WithholdingIdentifying the Payee Foreign Persons DocumentationBeneficial Owners Foreign Intermediaries and Foreign Flow-Through Entities Standards of Knowledge Presumption Rules Income Subject to NRA WithholdingSource of Income Fixed or Determinable Annual or Periodical Income (FDAP) Withholding on Specific IncomeEffectively Connected Income Income Not Effectively Connected Pay for Personal Services Performed Artists and Athletes (Income Codes 42 and 43) Other Income Foreign Governments and Certain Other Foreign Organizations U. 2008 amended tax return S. 2008 amended tax return Taxpayer Identification NumbersUnexpected payment. 2008 amended tax return Depositing Withheld TaxesWhen Deposits Are Required Adjustment for Overwithholding Returns RequiredJoint owners. 2008 amended tax return Electronic reporting. 2008 amended tax return Partnership Withholding on Effectively Connected IncomeWho Must Withhold Foreign Partner Publicly Traded Partnerships U. 2008 amended tax return S. 2008 amended tax return Real Property InterestForeign corporations. 2008 amended tax return Domestic corporations. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return real property holding corporations. 2008 amended tax return Partnerships. 2008 amended tax return Trusts and estates. 2008 amended tax return Domestically controlled QIE. 2008 amended tax return Late filing of certifications or notices. 2008 amended tax return Certifications. 2008 amended tax return Liability of agent or qualified substitute. 2008 amended tax return Reporting and Paying the Tax Withholding Certificates Tax Treaty TablesTable 1 Table 2 Table 3 How To Get Tax HelpLow Income Taxpayer Clinics (LITCs). 2008 amended tax return Withholding of Tax In most cases, a foreign person is subject to U. 2008 amended tax return S. 2008 amended tax return tax on its U. 2008 amended tax return S. 2008 amended tax return source income. 2008 amended tax return Most types of U. 2008 amended tax return S. 2008 amended tax return source income received by a foreign person are subject to U. 2008 amended tax return S. 2008 amended tax return tax of 30%. 2008 amended tax return A reduced rate, including exemption, may apply if there is a tax treaty between the foreign person's country of residence and the United States. 2008 amended tax return The tax is generally withheld (NRA withholding) from the payment made to the foreign person. 2008 amended tax return The term “NRA withholding” is used in this publication descriptively to refer to withholding required under sections 1441, 1442, and 1443 of the Internal Revenue Code. 2008 amended tax return In most cases, NRA withholding describes the withholding regime that requires withholding on a payment of U. 2008 amended tax return S. 2008 amended tax return source income. 2008 amended tax return Payments to foreign persons, including nonresident alien individuals, foreign entities, and governments, may be subject to NRA withholding. 2008 amended tax return NRA withholding does not include withholding under section 1445 of the Code (see U. 2008 amended tax return S. 2008 amended tax return Real Property Interest, later) or under section 1446 of the Code (see Partnership Withholding on Effectively Connected Income , later). 2008 amended tax return A withholding agent (defined next) is the person responsible for withholding on payments made to a foreign person. 2008 amended tax return However, a withholding agent that can reliably associate the payment with documentation (discussed later) from a U. 2008 amended tax return S. 2008 amended tax return person is not required to withhold. 2008 amended tax return In addition, a withholding agent may apply a reduced rate of withholding (including an exemption from withholding) if it can reliably associate the payment with documentation from a beneficial owner that is a foreign person entitled to a reduced rate of withholding. 2008 amended tax return Withholding Agent You are a withholding agent if you are a U. 2008 amended tax return S. 2008 amended tax return or foreign person that has control, receipt, custody, disposal, or payment of any item of income of a foreign person that is subject to withholding. 2008 amended tax return A withholding agent may be an individual, corporation, partnership, trust, association, nominee (under section 1446 of the Code), or any other entity, including any foreign intermediary, foreign partnership, or U. 2008 amended tax return S. 2008 amended tax return branch of certain foreign banks and insurance companies. 2008 amended tax return You may be a withholding agent even if there is no requirement to withhold from a payment or even if another person has withheld the required amount from the payment. 2008 amended tax return Although several persons may be withholding agents for a single payment, the full tax is required to be withheld only once. 2008 amended tax return In most cases, the U. 2008 amended tax return S. 2008 amended tax return person who pays an amount subject to NRA withholding is the person responsible for withholding. 2008 amended tax return However, other persons may be required to withhold. 2008 amended tax return For example, a payment made by a flow-through entity or nonqualified intermediary that knows, or has reason to know, that the full amount of NRA withholding was not done by the person from which it receives a payment is required to do the appropriate withholding since it also falls within the definition of a withholding agent. 2008 amended tax return In addition, withholding must be done by any qualified intermediary, withholding foreign partnership, or withholding foreign trust in accordance with the terms of its withholding agreement, discussed later. 2008 amended tax return Liability for tax. 2008 amended tax return   As a withholding agent, you are personally liable for any tax required to be withheld. 2008 amended tax return This liability is independent of the tax liability of the foreign person to whom the payment is made. 2008 amended tax return If you fail to withhold and the foreign payee fails to satisfy its U. 2008 amended tax return S. 2008 amended tax return tax liability, then both you and the foreign person are liable for tax, as well as interest and any applicable penalties. 2008 amended tax return   The applicable tax will be collected only once. 2008 amended tax return If the foreign person satisfies its U. 2008 amended tax return S. 2008 amended tax return tax liability, you are not liable for the tax but remain liable for any interest and penalties for failure to withhold. 2008 amended tax return Determination of amount to withhold. 2008 amended tax return   You must withhold on the gross amount subject to NRA withholding. 2008 amended tax return You cannot reduce the gross amount by any deductions. 2008 amended tax return However, see Scholarships and Fellowship Grants and Pay for Personal Services Performed , later, for when a deduction for a personal exemption may be allowed. 2008 amended tax return   If the determination of the source of the income or the amount subject to tax depends on facts that are not known at the time of payment, you must withhold an amount sufficient to ensure that at least 30% of the amount subsequently determined to be subject to withholding is withheld. 2008 amended tax return In no case, however, should you withhold more than 30% of the total amount paid. 2008 amended tax return Or, you may make a reasonable estimate of the amount from U. 2008 amended tax return S. 2008 amended tax return sources and put a corresponding part of the amount due in escrow until the amount from U. 2008 amended tax return S. 2008 amended tax return sources can be determined, at which time withholding becomes due. 2008 amended tax return When to withhold. 2008 amended tax return   Withholding is required at the time you make a payment of an amount subject to withholding. 2008 amended tax return A payment is made to a person if that person realizes income, whether or not there is an actual transfer of cash or other property. 2008 amended tax return A payment is considered made to a person if it is paid for that person's benefit. 2008 amended tax return For example, a payment made to a creditor of a person in satisfaction of that person's debt to the creditor is considered made to the person. 2008 amended tax return A payment also is considered made to a person if it is made to that person's agent. 2008 amended tax return   A U. 2008 amended tax return S. 2008 amended tax return partnership should withhold when any distributions that include amounts subject to withholding are made. 2008 amended tax return However, if a foreign partner's distributive share of income subject to withholding is not actually distributed, the U. 2008 amended tax return S. 2008 amended tax return partnership must withhold on the foreign partner's distributive share of the income on the earlier of the date that a Schedule K-1 (Form 1065) is provided or mailed to the partner or the due date for furnishing that schedule. 2008 amended tax return If the distributable amount consists of effectively connected income, see Partnership Withholding on Effectively Connected Income , later. 2008 amended tax return A U. 2008 amended tax return S. 2008 amended tax return trust is required to withhold on the amount includible in the gross income of a foreign beneficiary to the extent the trust's distributable net income consists of an amount subject to withholding. 2008 amended tax return To the extent a U. 2008 amended tax return S. 2008 amended tax return trust is required to distribute an amount subject to withholding but does not actually distribute the amount, it must withhold on the foreign beneficiary's allocable share at the time the income is required to be reported on Form 1042-S. 2008 amended tax return Withholding and Reporting Obligations You are required to report payments subject to NRA withholding on Form 1042-S and to file a tax return on Form 1042. 2008 amended tax return (See Returns Required , later. 2008 amended tax return ) An exception from reporting may apply to individuals who are not required to withhold from a payment and who do not make the payment in the course of their trade or business. 2008 amended tax return Form 1099 reporting and backup withholding. 2008 amended tax return    You also may be responsible as a payer for reporting on Form 1099 payments made to a U. 2008 amended tax return S. 2008 amended tax return person. 2008 amended tax return You must withhold 28% (backup withholding rate) from a reportable payment made to a U. 2008 amended tax return S. 2008 amended tax return person that is subject to Form 1099 reporting if any of the following apply. 2008 amended tax return The U. 2008 amended tax return S. 2008 amended tax return person has not provided its taxpayer identification number (TIN) in the manner required. 2008 amended tax return The IRS notifies you that the TIN furnished by the payee is incorrect. 2008 amended tax return There has been a notified payee underreporting. 2008 amended tax return There has been a payee certification failure. 2008 amended tax return In most cases, a TIN must be provided by a U. 2008 amended tax return S. 2008 amended tax return non-exempt recipient on Form W-9, Request for Taxpayer Identification Number and Certification. 2008 amended tax return A payer files a tax return on Form 945, Annual Return of Withheld Federal Income Tax, for backup withholding. 2008 amended tax return You may be required to file Form 1099 and, if appropriate, backup withhold, even if you do not make the payments directly to that U. 2008 amended tax return S. 2008 amended tax return person. 2008 amended tax return For example, you are required to report income paid to a foreign intermediary or flow-through entity that collects for a U. 2008 amended tax return S. 2008 amended tax return person subject to Form 1099 reporting. 2008 amended tax return See Identifying the Payee , later, for more information. 2008 amended tax return Also see Section S. 2008 amended tax return Special Rules for Reporting Payments Made Through Foreign Intermediaries and Foreign Flow-Through Entities on Form 1099 in the General Instructions for Certain Information Returns. 2008 amended tax return Foreign persons who provide Form W-8BEN, Form W-8ECI, or Form W-8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting. 2008 amended tax return Wages paid to employees. 2008 amended tax return   If you are the employer of a nonresident alien, you generally must withhold taxes at graduated rates. 2008 amended tax return See Pay for Personal Services Performed , later. 2008 amended tax return Effectively connected income by partnerships. 2008 amended tax return   A withholding agent that is a partnership (whether U. 2008 amended tax return S. 2008 amended tax return or foreign) is also responsible for withholding on its income effectively connected with a U. 2008 amended tax return S. 2008 amended tax return trade or business that is allocable to foreign partners. 2008 amended tax return See Partnership Withholding on Effectively Connected Income , later, for more information. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return real property interest. 2008 amended tax return   A withholding agent also may be responsible for withholding if a foreign person transfers a U. 2008 amended tax return S. 2008 amended tax return real property interest to the agent, or if it is a corporation, partnership, trust, or estate that distributes a U. 2008 amended tax return S. 2008 amended tax return real property interest to a shareholder, partner, or beneficiary that is a foreign person. 2008 amended tax return See U. 2008 amended tax return S. 2008 amended tax return Real Property Interest , later. 2008 amended tax return Persons Subject to NRA Withholding NRA withholding applies only to payments made to a payee that is a foreign person. 2008 amended tax return It does not apply to payments made to U. 2008 amended tax return S. 2008 amended tax return persons. 2008 amended tax return Usually, you determine the payee's status as a U. 2008 amended tax return S. 2008 amended tax return or foreign person based on the documentation that person provides. 2008 amended tax return See Documentation , later. 2008 amended tax return However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation, then you must apply certain presumption rules, discussed later. 2008 amended tax return Identifying the Payee In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. 2008 amended tax return However, there are situations in which the payee is a person other than the one to whom you actually make a payment. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return agent of foreign person. 2008 amended tax return   If you make a payment to a U. 2008 amended tax return S. 2008 amended tax return person and you have actual knowledge that the U. 2008 amended tax return S. 2008 amended tax return person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. 2008 amended tax return However, if the U. 2008 amended tax return S. 2008 amended tax return person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold. 2008 amended tax return   If the payment is not subject to NRA withholding (for example, gross proceeds from the sales of securities), you must treat the payment as made to a U. 2008 amended tax return S. 2008 amended tax return person and not as a payment to a foreign person. 2008 amended tax return You may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2008 amended tax return Disregarded entities. 2008 amended tax return   A business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. 2008 amended tax return The payee of a payment made to a disregarded entity is the owner of the entity. 2008 amended tax return   If the owner of the entity is a foreign person, you must apply NRA withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding. 2008 amended tax return   If the owner is a U. 2008 amended tax return S. 2008 amended tax return person, you do not apply NRA withholding. 2008 amended tax return However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. 2008 amended tax return You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity. 2008 amended tax return Flow-Through Entities The payees of payments (other than income effectively connected with a U. 2008 amended tax return S. 2008 amended tax return trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. 2008 amended tax return This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2008 amended tax return Income that is, or is deemed to be, effectively connected with the conduct of a U. 2008 amended tax return S. 2008 amended tax return trade or business of a flow-through entity is treated as paid to the entity. 2008 amended tax return All of the following are flow-through entities. 2008 amended tax return A foreign partnership (other than a withholding foreign partnership). 2008 amended tax return A foreign simple or foreign grantor trust (other than a withholding foreign trust). 2008 amended tax return A fiscally transparent entity receiving income for which treaty benefits are claimed. 2008 amended tax return See Fiscally transparent entity , later. 2008 amended tax return In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation , later) on which it claims such status. 2008 amended tax return You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later. 2008 amended tax return You must determine whether the owners or beneficiaries of a flow-through entity are U. 2008 amended tax return S. 2008 amended tax return or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of NRA withholding applies. 2008 amended tax return You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. 2008 amended tax return If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. 2008 amended tax return See Documentation and Presumption Rules , later. 2008 amended tax return Withholding foreign partnerships and withholding foreign trusts are not flow-through entities. 2008 amended tax return Foreign partnerships. 2008 amended tax return    A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. 2008 amended tax return If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves a flow-through entity or a foreign intermediary. 2008 amended tax return However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2008 amended tax return If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees. 2008 amended tax return Example 1. 2008 amended tax return A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U. 2008 amended tax return S. 2008 amended tax return citizen. 2008 amended tax return You make a payment of U. 2008 amended tax return S. 2008 amended tax return source interest to the partnership. 2008 amended tax return It gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN from the foreign corporation; and Form W-9 from the U. 2008 amended tax return S. 2008 amended tax return citizen. 2008 amended tax return The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner. 2008 amended tax return You must treat all three partners as the payees of the interest payment as if the payment were made directly to them. 2008 amended tax return Report the payment to the nonresident alien and the foreign corporation on Forms 1042-S. 2008 amended tax return Report the payment to the U. 2008 amended tax return S. 2008 amended tax return citizen on Form 1099-INT. 2008 amended tax return Example 2. 2008 amended tax return A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. 2008 amended tax return The second partnership has two partners, both nonresident alien individuals. 2008 amended tax return You make a payment of U. 2008 amended tax return S. 2008 amended tax return source interest to the first partnership. 2008 amended tax return It gives you a valid Form W-8IMY with which it associates a Form W-8BEN from the foreign corporation and a Form W-8IMY from the second partnership. 2008 amended tax return In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. 2008 amended tax return The Forms W-8IMY from the partnerships have complete withholding statements associated with them. 2008 amended tax return Because you can reliably associate a part of the interest payment with the Form W-8BEN provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. 2008 amended tax return Example 3. 2008 amended tax return You make a payment of U. 2008 amended tax return S. 2008 amended tax return source dividends to a withholding foreign partnership. 2008 amended tax return The partnership has two partners, both foreign corporations. 2008 amended tax return You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. 2008 amended tax return You must treat the partnership as the payee of the dividends. 2008 amended tax return Foreign simple and grantor trust. 2008 amended tax return   A trust is foreign unless it meets both of the following tests. 2008 amended tax return A court within the United States is able to exercise primary supervision over the administration of the trust. 2008 amended tax return One or more U. 2008 amended tax return S. 2008 amended tax return persons have the authority to control all substantial decisions of the trust. 2008 amended tax return   In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. 2008 amended tax return A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code. 2008 amended tax return   The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. 2008 amended tax return The payees of a payment made to a foreign grantor trust are the owners of the trust. 2008 amended tax return However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. 2008 amended tax return If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees. 2008 amended tax return Example. 2008 amended tax return A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U. 2008 amended tax return S. 2008 amended tax return citizen. 2008 amended tax return You make a payment of interest to the foreign trust. 2008 amended tax return It gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U. 2008 amended tax return S. 2008 amended tax return citizen. 2008 amended tax return The trust also gives you a complete withholding statement that enables you to associate a part of the interest payment with the forms provided by each beneficiary. 2008 amended tax return You must treat all three beneficiaries as the payees of the interest payment as if the payment were made directly to them. 2008 amended tax return Report the payment to the nonresident aliens on Forms 1042-S. 2008 amended tax return Report the payment to the U. 2008 amended tax return S. 2008 amended tax return citizen on Form 1099-INT. 2008 amended tax return Fiscally transparent entity. 2008 amended tax return   If a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. 2008 amended tax return The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc. 2008 amended tax return ). 2008 amended tax return The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. 2008 amended tax return An entity is considered to be fiscally transparent for the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. 2008 amended tax return Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity. 2008 amended tax return   The payees of a payment made to a fiscally transparent entity are the interest holders of the entity. 2008 amended tax return Example. 2008 amended tax return Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. 2008 amended tax return A has two interest holders, B and C. 2008 amended tax return B is a corporation organized under the laws of country Y. 2008 amended tax return C is a corporation organized under the laws of country Z. 2008 amended tax return Both countries Y and Z have an income tax treaty in force with the United States. 2008 amended tax return A receives royalty income from U. 2008 amended tax return S. 2008 amended tax return sources that is not effectively connected with the conduct of a trade or business in the United States. 2008 amended tax return For U. 2008 amended tax return S. 2008 amended tax return income tax purposes, A is treated as a partnership. 2008 amended tax return Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. 2008 amended tax return The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income was realized directly from the source that paid it to A. 2008 amended tax return Accordingly, A is fiscally transparent in its jurisdiction, country X. 2008 amended tax return B and C are not fiscally transparent under the laws of their respective countries of incorporation. 2008 amended tax return Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income was realized directly from the source that paid it to A. 2008 amended tax return Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U. 2008 amended tax return S. 2008 amended tax return source royalty income for purposes of the U. 2008 amended tax return S. 2008 amended tax return -Y income tax treaty. 2008 amended tax return Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. 2008 amended tax return Therefore, A is not treated as fiscally transparent under the laws of country Z. 2008 amended tax return Accordingly, C is not treated as deriving its share of the U. 2008 amended tax return S. 2008 amended tax return source royalty income for purposes of the U. 2008 amended tax return S. 2008 amended tax return -Z income tax treaty. 2008 amended tax return Foreign Intermediaries In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. 2008 amended tax return This rule applies for purposes of NRA withholding and for Form 1099 reporting and backup withholding. 2008 amended tax return You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold. 2008 amended tax return An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. 2008 amended tax return A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. 2008 amended tax return In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY. 2008 amended tax return You must determine whether the customers or account holders of a foreign intermediary are U. 2008 amended tax return S. 2008 amended tax return or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of NRA withholding applies. 2008 amended tax return You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. 2008 amended tax return If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules. 2008 amended tax return See Documentation and Presumption Rules , later. 2008 amended tax return Nonqualified intermediary. 2008 amended tax return   A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. 2008 amended tax return The payees of a payment made to an NQI are the customers or account holders on whose behalf the NQI is acting. 2008 amended tax return Example. 2008 amended tax return You make a payment of interest to a foreign bank that is a nonqualified intermediary. 2008 amended tax return The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U. 2008 amended tax return S. 2008 amended tax return person for whom the bank is collecting the payments. 2008 amended tax return The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment to each account holder and provides all other information required to be on the withholding statement. 2008 amended tax return The account holders are the payees of the interest payment. 2008 amended tax return You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U. 2008 amended tax return S. 2008 amended tax return person on Form 1099-INT. 2008 amended tax return Qualified intermediary. 2008 amended tax return   A qualified intermediary (QI) is any foreign intermediary (or foreign branch of a U. 2008 amended tax return S. 2008 amended tax return intermediary) that has entered into a qualified intermediary withholding agreement (discussed later) with the IRS. 2008 amended tax return You may treat a QI as a payee to the extent the QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. 2008 amended tax return In this situation, the QI is required to withhold the tax. 2008 amended tax return You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI. 2008 amended tax return   A payment to a QI to the extent it does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. 2008 amended tax return If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U. 2008 amended tax return S. 2008 amended tax return person. 2008 amended tax return Branches of financial institutions. 2008 amended tax return   Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved “know-your-customer” (KYC) rules. 2008 amended tax return The countries with approved KYC rules are listed on IRS. 2008 amended tax return gov. 2008 amended tax return QI withholding agreement. 2008 amended tax return   Foreign financial institutions and foreign branches of U. 2008 amended tax return S. 2008 amended tax return financial institutions can enter into an agreement with the IRS to be a qualified intermediary. 2008 amended tax return   A QI is entitled to certain simplified withholding and reporting rules. 2008 amended tax return In general, there are three major areas whereby intermediaries with QI status are afforded such simplified treatment. 2008 amended tax return   To apply for QI status, complete Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number. 2008 amended tax return These forms, and the procedures required to obtain a QI withholding agreement are available at www. 2008 amended tax return irs. 2008 amended tax return gov/Businesses/Corporations/Qualified-Intermediaries-(QI). 2008 amended tax return Documentation. 2008 amended tax return   A QI is not required to forward documentation obtained from foreign account holders to the U. 2008 amended tax return S. 2008 amended tax return withholding agent from whom the QI receives a payment of U. 2008 amended tax return S. 2008 amended tax return source income. 2008 amended tax return The QI maintains such documentation at its location and provides the U. 2008 amended tax return S. 2008 amended tax return withholding agent with withholding rate pools. 2008 amended tax return A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding. 2008 amended tax return   A QI is required to provide the U. 2008 amended tax return S. 2008 amended tax return withholding agent with information regarding U. 2008 amended tax return S. 2008 amended tax return persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and backup withholding. 2008 amended tax return   If a QI obtains documentary evidence under the “know-your-customer” rules that apply to the QI under local law, and the documentary evidence is of a type specified in an attachment to the QI agreement, the documentary evidence remains valid until there is a change in circumstances or the QI knows the information is incorrect. 2008 amended tax return This indefinite validity period rule does not apply to Forms W-8 or to documentary evidence that is not of the type specified in the attachment to the agreement. 2008 amended tax return Form 1042-S reporting. 2008 amended tax return   A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. 2008 amended tax return Pooled basis reporting is not available for payments to certain account holders, such as a nonqualified intermediary or a flow-through entity (discussed earlier). 2008 amended tax return Collective refund procedures. 2008 amended tax return   A QI may seek a refund on behalf of its direct account holders. 2008 amended tax return The direct account holders, therefore, are not required to file returns with the IRS to obtain refunds, but rather may obtain them from the QI. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return branches of foreign banks and foreign insurance companies. 2008 amended tax return   Special rules apply to a U. 2008 amended tax return S. 2008 amended tax return branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. 2008 amended tax return If you agree to treat the branch as a U. 2008 amended tax return S. 2008 amended tax return person, you may treat the branch as a U. 2008 amended tax return S. 2008 amended tax return payee for a payment subject to NRA withholding provided you receive a Form W-8IMY from the U. 2008 amended tax return S. 2008 amended tax return branch on which the agreement is evidenced. 2008 amended tax return If you treat the branch as a U. 2008 amended tax return S. 2008 amended tax return payee, you are not required to withhold. 2008 amended tax return Even though you agree to treat the branch as a U. 2008 amended tax return S. 2008 amended tax return person, you must report the payment on Form 1042-S. 2008 amended tax return   A financial institution organized in a U. 2008 amended tax return S. 2008 amended tax return possession is treated as a U. 2008 amended tax return S. 2008 amended tax return branch. 2008 amended tax return The special rules discussed in this section apply to a possessions financial institution. 2008 amended tax return   If you are paying a U. 2008 amended tax return S. 2008 amended tax return branch an amount that is not subject to NRA withholding, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U. 2008 amended tax return S. 2008 amended tax return person for amounts subject to NRA withholding. 2008 amended tax return Consequently, amounts not subject to NRA withholding that are paid to a U. 2008 amended tax return S. 2008 amended tax return branch are not subject to Form 1099 reporting or backup withholding. 2008 amended tax return   Alternatively, a U. 2008 amended tax return S. 2008 amended tax return branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. 2008 amended tax return In this situation, the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. 2008 amended tax return See Nonqualified Intermediaries under  Documentation, later. 2008 amended tax return   If the U. 2008 amended tax return S. 2008 amended tax return branch does not provide you with a Form W-8IMY, then you should treat a payment subject to NRA withholding as made to the foreign person of which the branch is a part and the income as effectively connected with the conduct of a trade or business in the United States. 2008 amended tax return Withholding foreign partnership and foreign trust. 2008 amended tax return   A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP withholding agreement with the IRS and is acting in that capacity. 2008 amended tax return A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT withholding agreement with the IRS and is acting in that capacity. 2008 amended tax return   A WP or WT may act in that capacity only for payments of amounts subject to NRA withholding that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. 2008 amended tax return A WP or WT acting in that capacity must assume NRA withholding responsibility for these amounts. 2008 amended tax return You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts. 2008 amended tax return WP and WT withholding agreements. 2008 amended tax return   The WP and WT withholding agreements and the application procedures for the agreements are in Revenue Procedure 2003-64. 2008 amended tax return Also see the following items. 2008 amended tax return Revenue Procedure 2004-21. 2008 amended tax return Revenue Procedure 2005-77. 2008 amended tax return Employer identification number (EIN). 2008 amended tax return   A completed Form SS-4 must be submitted with the application for being a WP or WT. 2008 amended tax return The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. 2008 amended tax return Documentation. 2008 amended tax return   A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. 2008 amended tax return The statement is not required to contain withholding rate pool information or any information relating to the identity of a direct partner, beneficiary, or owner. 2008 amended tax return The Form W-8IMY must contain the WP-EIN or WT-EIN. 2008 amended tax return Foreign Persons A payee is subject to NRA withholding only if it is a foreign person. 2008 amended tax return A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U. 2008 amended tax return S. 2008 amended tax return person. 2008 amended tax return It also includes a foreign branch of a U. 2008 amended tax return S. 2008 amended tax return financial institution if the foreign branch is a qualified intermediary. 2008 amended tax return In most cases, the U. 2008 amended tax return S. 2008 amended tax return branch of a foreign corporation or partnership is treated as a foreign person. 2008 amended tax return Nonresident alien. 2008 amended tax return   A nonresident alien is an individual who is not a U. 2008 amended tax return S. 2008 amended tax return citizen or a resident alien. 2008 amended tax return A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding. 2008 amended tax return Married to U. 2008 amended tax return S. 2008 amended tax return citizen or resident alien. 2008 amended tax return   Nonresident alien individuals married to U. 2008 amended tax return S. 2008 amended tax return citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. 2008 amended tax return However, these individuals are still subject to the NRA withholding rules that apply to nonresident aliens for all income except wages. 2008 amended tax return Wages paid to these individuals are subject to graduated withholding. 2008 amended tax return See Wages Paid to Employees—Graduated Withholding . 2008 amended tax return Resident alien. 2008 amended tax return   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year. 2008 amended tax return Green card test. 2008 amended tax return An alien is a resident alien if the individual was a lawful permanent resident of the United States at any time during the calendar year. 2008 amended tax return This is known as the green card test because these aliens hold immigrant visas (also known as green cards). 2008 amended tax return Substantial presence test. 2008 amended tax return An alien is considered a resident alien if the individual meets the substantial presence test for the calendar year. 2008 amended tax return Under this test, the individual must be physically present in the United States on at least: 31 days during the current calendar year, and 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year. 2008 amended tax return   In most cases, the days the alien is in the United States as a teacher, student, or trainee on an “F,” “J,” “M,” or “Q” visa are not counted. 2008 amended tax return This exception is for a limited period of time. 2008 amended tax return   For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519. 2008 amended tax return Note. 2008 amended tax return   If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. 2008 amended tax return For more information on making adjustments, see chapter 13 of Publication 15 (Circular E). 2008 amended tax return Resident of a U. 2008 amended tax return S. 2008 amended tax return possession. 2008 amended tax return   A bona fide resident of Puerto Rico, the U. 2008 amended tax return S. 2008 amended tax return Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U. 2008 amended tax return S. 2008 amended tax return citizen or a U. 2008 amended tax return S. 2008 amended tax return national is treated as a nonresident alien for the withholding rules explained here. 2008 amended tax return A bona fide resident of a possession is someone who: Meets the presence test, Does not have a tax home outside the possession, and Does not have a closer connection to the United States or to a foreign country than to the possession. 2008 amended tax return   For more information, see Publication 570, Tax Guide for Individuals With Income From U. 2008 amended tax return S. 2008 amended tax return Possessions. 2008 amended tax return Foreign corporations. 2008 amended tax return   A foreign corporation is one that does not fit the definition of a domestic corporation. 2008 amended tax return A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia. 2008 amended tax return Guam or Northern Mariana Islands corporations. 2008 amended tax return   A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons; and At least 20% of the corporation's gross income is derived from sources within Guam or the CNMI for the 3-year period ending with the close of the preceding tax year of the corporation (or the period the corporation has been in existence, if less). 2008 amended tax return Note. 2008 amended tax return   The provisions discussed below under U. 2008 amended tax return S. 2008 amended tax return Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return Virgin Islands and American Samoa corporations. 2008 amended tax return   A corporation created or organized in, or under the laws of, the U. 2008 amended tax return S. 2008 amended tax return Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if: At all times during the tax year less than 25% in value of the corporation's stock is owned, directly or indirectly, by foreign persons, At least 65% of the corporation's gross income is effectively connected with the conduct of a trade or business in the U. 2008 amended tax return S. 2008 amended tax return Virgin Islands, American Samoa, Guam, the CNMI, or the United States for the 3-year period ending with the close of the tax year of the corporation (or the period the corporation or any predecessor has been in existence, if less), and No substantial part of the income of the corporation is used, directly or indirectly, to satisfy obligations to a person who is not a bona fide resident of the U. 2008 amended tax return S. 2008 amended tax return Virgin Islands, American Samoa, Guam, the CNMI, or the United States. 2008 amended tax return Foreign private foundations. 2008 amended tax return   A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. 2008 amended tax return Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to NRA withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate. 2008 amended tax return Other foreign organizations, associations, and charitable institutions. 2008 amended tax return   An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code even if it was formed under foreign law. 2008 amended tax return In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations. 2008 amended tax return   Payments to these organizations, however, must be reported on Form 1042-S, even though no tax is withheld. 2008 amended tax return   You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return branches of foreign persons. 2008 amended tax return   In most cases, a payment to a U. 2008 amended tax return S. 2008 amended tax return branch of a foreign person is a payment made to the foreign person. 2008 amended tax return However, you may treat payments to U. 2008 amended tax return S. 2008 amended tax return branches of foreign banks and foreign insurance companies (discussed earlier) that are subject to U. 2008 amended tax return S. 2008 amended tax return regulatory supervision as payments made to a U. 2008 amended tax return S. 2008 amended tax return person, if you and the U. 2008 amended tax return S. 2008 amended tax return branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. 2008 amended tax return For this purpose, a financial institution organized under the laws of a U. 2008 amended tax return S. 2008 amended tax return possession is treated as a U. 2008 amended tax return S. 2008 amended tax return branch. 2008 amended tax return Documentation In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. 2008 amended tax return The payee is a U. 2008 amended tax return S. 2008 amended tax return person. 2008 amended tax return The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding. 2008 amended tax return In most cases, you must get the documentation before you make the payment. 2008 amended tax return The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. 2008 amended tax return See Standards of Knowledge , later. 2008 amended tax return If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. 2008 amended tax return For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules. 2008 amended tax return The specific types of documentation are discussed in this section. 2008 amended tax return However, see Withholding on Specific Income , later, as well as the instructions to the particular forms. 2008 amended tax return As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY. 2008 amended tax return Section 1446 withholding. 2008 amended tax return   Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. 2008 amended tax return In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. 2008 amended tax return This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section. 2008 amended tax return Joint owners. 2008 amended tax return    If you make a payment to joint owners, you need to get documentation from each owner. 2008 amended tax return Form W-9. 2008 amended tax return   In most cases, you can treat the payee as a U. 2008 amended tax return S. 2008 amended tax return person if the payee gives you a Form W-9. 2008 amended tax return The Form W-9 can be used only by a U. 2008 amended tax return S. 2008 amended tax return person and must contain the payee's taxpayer identification number (TIN). 2008 amended tax return If there is more than one owner, you may treat the total amount as paid to a U. 2008 amended tax return S. 2008 amended tax return person if any one of the owners gives you a Form W-9. 2008 amended tax return See U. 2008 amended tax return S. 2008 amended tax return Taxpayer Identification Numbers , later. 2008 amended tax return U. 2008 amended tax return S. 2008 amended tax return persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding. 2008 amended tax return Form W-8. 2008 amended tax return   In most cases, a foreign payee of the income should give you a form in the Form W-8 series. 2008 amended tax return Until further notice, you can rely upon Forms W-8 that contain a P. 2008 amended tax return O. 2008 amended tax return box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U. 2008 amended tax return S. 2008 amended tax return person and that a street address is available. 2008 amended tax return You may rely on Forms W-8 for which there is a U. 2008 amended tax return S. 2008 amended tax return mailing address provided you received the form prior to December 31, 2001. 2008 amended tax return   If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. 2008 amended tax return You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U. 2008 amended tax return S. 2008 amended tax return possession. 2008 amended tax return Other documentation. 2008 amended tax return   Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. 2008 amended tax return The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. 2008 amended tax return These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income. 2008 amended tax return Beneficial Owners If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner. 2008 amended tax return Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. 2008 amended tax return   This form is used by a foreign person to: Establish foreign status; Claim that such person is the beneficial owner of the income for which the form is being furnished or a partner in a partnership subject to section 1446 withholding; and If applicable, claim a reduced rate of, or exemption from, withholding under an income tax treaty. 2008 amended tax return   Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. 2008 amended tax return For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding. 2008 amended tax return Claiming treaty benefits. 2008 amended tax return   You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U. 2008 amended tax return S. 2008 amended tax return TIN and certifies that: It is a resident of a treaty country; It is the beneficial owner of the income; If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent); and It meets any limitation on benefits provision contained in the treaty, if applicable. 2008 amended tax return   If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000. 2008 amended tax return   An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. 2008 amended tax return See Fiscally transparent entity discussed earlier under Flow-Through Entities. 2008 amended tax return   Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. 2008 amended tax return For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. 2008 amended tax return   The exemptions from, or reduced rates of, U. 2008 amended tax return S. 2008 amended tax return tax vary under each treaty. 2008 amended tax return You must check the provisions of the tax treaty that apply. 2008 amended tax return Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied. 2008 amended tax return   If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. 2008 amended tax return You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect. 2008 amended tax return Exceptions to TIN requirement. 2008 amended tax return   A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met. 2008 amended tax return Income from marketable securities (discussed next). 2008 amended tax return Unexpected payments to an individual (discussed under U. 2008 amended tax return S. 2008 amended tax return Taxpayer Identification Numbers ). 2008 amended tax return Marketable securities. 2008 amended tax return   A Form W-8BEN provided to claim treaty benefits does not need a U. 2008 amended tax return S. 2008 amended tax return TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. 2008 amended tax return For this purpose, income from a marketable security consists of the following items. 2008 amended tax return Dividends and interest from stocks and debt obligations that are actively traded. 2008 amended tax return Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund). 2008 amended tax return Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933. 2008 amended tax return Income related to loans of any of the above securities. 2008 amended tax return Offshore accounts. 2008 amended tax return   If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN. 2008 amended tax return   In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. 2008 amended tax return However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. 2008 amended tax return An offshore account is an account maintained at an office or branch of a U. 2008 amended tax return S. 2008 amended tax return or foreign bank or other financial institution at any location outside the United States. 2008 amended tax return   You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. 2008 amended tax return This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. 2008 amended tax return In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later. 2008 amended tax return Documentary evidence. 2008 amended tax return   You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. 2008 amended tax return To claim treaty benefits, the documentary evidence must be one of the following: A certificate of residence that: Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident, States that the person has filed its most recent income tax return as a resident of that country, and Is issued within 3 years prior to being presented to you. 2008 amended tax return Documentation for an individual that: Includes the individual's name, address, and photograph, Is an official document issued by an authorized governmental body, and Is issued no more than 3 years prior to being presented to you. 2008 amended tax return Documentation for an entity that: Includes the name of the entity, Includes the address of its principal office in the treaty country, and Is an official document issued by an authorized governmental body. 2008 amended tax return In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty. 2008 amended tax return Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States. 2008 amended tax return   This form is used by a foreign person to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim that the income is effectively connected with the conduct of a trade or business in the United States. 2008 amended tax return (See Effectively Connected Income , later. 2008 amended tax return )   Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding. 2008 amended tax return   If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U. 2008 amended tax return S. 2008 amended tax return trade or business is subject to withholding under section 1446. 2008 amended tax return If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form. 2008 amended tax return    If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership. 2008 amended tax return Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding. 2008 amended tax return   This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U. 2008 amended tax return S. 2008 amended tax return possession to: Establish foreign status, Claim that such person is the beneficial owner of the income for which the form is being furnished, and Claim a reduced rate of, or an exemption from, withholding as such an entity. 2008 amended tax return   If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446. 2008 amended tax return   See Foreign Governments and Certain Other Foreign Organizations , later. 2008 amended tax return Foreign Intermediaries and Foreign Flow-Through Entities Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. 2008 amended tax return The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. 2008 amended tax return The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes. 2008 amended tax return Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U. 2008 amended tax return S. 2008 amended tax return Branches for United States Tax Withholding. 2008 amended tax return   This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U. 2008 amended tax return S. 2008 amended tax return branches, to: Represent that a foreign person is a qualified intermediary or nonqualified intermediary, Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility, Represent that a foreign partnership or a foreign simple or grantor trust is a withholding foreign partnership or a withholding foreign trust, Represent that a foreign flow-through entity is a nonwithholding foreign partnership, or a nonwithholding foreign trust and that the income is not effectively connected with the conduct of a trade or business in the United States, Represent that the provider is a U. 2008 amended tax return S. 2008 amended tax return branch of a foreign bank or insurance company and either is agreeing to be treated as a U. 2008 amended tax return S. 2008 amended tax return person or is transmitting documentation of the persons on whose behalf it is acting, or Represent that, for purposes of section 1446, it is an upper-tier foreign partnership or a foreign grantor trust and that the form is being used to transmit the required documentation. 2008 amended tax return For information on qualifying as an upper-tier foreign partnership, see Regulations section 1. 2008 amended tax return 1446-5. 2008 amended tax return Qualified Intermediaries In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. 2008 amended tax return A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. 2008 amended tax return The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. 2008 amended tax return The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature. 2008 amended tax return Responsibilities. 2008 amended tax return   Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. 2008 amended tax return However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. 2008 amended tax return Instead, it provides you with a withholding statement that contains withholding rate pool information. 2008 amended tax return A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. 2008 amended tax return A qualified intermediary is required to provide you with information regarding U. 2008 amended tax return S. 2008 amended tax return persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U. 2008 amended tax return S. 2008 amended tax return person unless it has assumed Form 1099 reporting and backup withholding responsibility. 2008 amended tax return For the alternative procedure for providing rate pool information for U. 2008 amended tax return S. 2008 amended tax return non-exempt persons, see the Form W-8IMY instructions. 2008 amended tax return   The withholding statement must: Designate those accounts for which it acts as a qualified intermediary, Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and Provide sufficient information for you to allocate the payment to a withholding rate pool. 2008 amended tax return   The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI. 2008 amended tax return Primary responsibility not assumed. 2008 amended tax return   If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. 2008 amended tax return Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U. 2008 amended tax return S. 2008 amended tax return person subject to Form 1099 reporting and/or backup withholding. 2008 amended tax return The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2008 amended tax return Primary NRA withholding responsibility assumed. 2008 amended tax return   If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U. 2008 amended tax return S. 2008 amended tax return person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. 2008 amended tax return The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person. 2008 amended tax return Primary NRA and Form 1099 responsibility assumed. 2008 amended tax return   If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. 2008 amended tax return It is not necessary to associate the payment with withholding rate pools. 2008 amended tax return Example. 2008 amended tax return You make a payment of dividends to a QI. 2008 amended tax return It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U. 2008 amended tax return S. 2008 amended tax return individual who provides it with a Form W-9. 2008 amended tax return Each customer is entitled to 20% of the dividend payment. 2008 amended tax return The QI does not assume any primary withholding responsibility. 2008 amended tax return The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U. 2008 amended tax return S. 2008 amended tax return individual. 2008 amended tax return You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. 2008 amended tax return The part of the payment allocable to the U. 2008 amended tax return S. 2008 amended tax return individual (20%) is reportable on Form 1099-DIV. 2008 amended tax return Smaller partnerships and trusts. 2008 amended tax return   A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions. 2008 amended tax return It is a foreign partnership or foreign simple or grantor trust. 2008 amended tax return It is a direct account holder of the QI. 2008 amended tax return It does not have any partner, beneficiary, or owner that is a U. 2008 amended tax return S. 2008 amended tax return person or a pass- through partner, beneficiary, or owner. 2008 amended tax return   For information on these rules, see section 4A. 2008 amended tax return 01 of the QI agreement. 2008 amended tax return This is found in Appendix 3 of Revenue Procedure 2003-64. 2008 amended tax return Also see Revenue Procedure 2004-21. 2008 amended tax return Related partnerships and trusts. 2008 amended tax return    A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions. 2008 amended tax return It is a foreign partnership or foreign simple or grantor trust. 2008 amended tax return It is either: A direct account holder of the QI, or An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule. 2008 amended tax return For information on these rules, see section 4A. 2008 amended tax return 02 of the QI agreement. 2008 amended tax return This is found in Appendix 3 of Revenue Procedure 2003-64. 2008 amended tax return Also see Revenue Procedure 2005-77. 2008 amended tax return Nonqualified Intermediaries If you are making a payment to an NQI, foreign flow-through entity, or U. 2008 amended tax return S. 2008 amended tax return branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment: You can allocate the payment to a valid Form W-8IMY, You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow- through entity, or U. 2008 amended tax return S. 2008 amended tax return branch), and You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required. 2008 amended tax return The NQI, flow-through entity, or U. 2008 amended tax return S. 2008 amended tax return branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. 2008 amended tax return A withholding statement must be updated to keep the information accurate prior to each payment. 2008 amended tax return Withholding statement. 2008 amended tax return   In most cases, a withholding statement must contain the following information. 2008 amended tax return The name, address, and TIN (if any, or if required) of each person for whom documentation is provided. 2008 amended tax return The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided. 2008 amended tax return The status of the person for whom the documentation has been provided, such as whether the person is a U. 2008 amended tax return S. 2008 amended tax return exempt recipient (U. 2008 amended tax return S. 2008 amended tax return person exempt from Form 1099 reporting), U. 2008 amended tax return S. 2008 amended tax return non-exempt recipient (U. 2008 amended tax return S. 2008 amended tax return person subject to Form 1099 reporting), or a foreign person. 2008 amended tax return For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U. 2008 amended tax return S. 2008 amended tax return branch. 2008 amended tax return The type of recipient the person is, based on the recipient codes used on Form 1042-S. 2008 amended tax return Information allocating each payment, by income type, to each payee (including U. 2008 amended tax return S. 2008 amended tax return exempt and U. 2008 amended tax return S. 2008 amended tax return non-exempt recipients) for whom documentation has been provided. 2008 amended tax return The rate of withholding that applies to each foreign person to whom a payment is allocated. 2008 amended tax return A foreign payee's country of residence. 2008 amended tax return If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc. 2008 amended tax return ). 2008 amended tax return In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made. 2008 amended tax return The name, address, and TIN (if any) of any other NQI, flow-through entity, or U. 2008 amended tax return S. 2008 amended tax return branch from which the payee will directly receive a payment. 2008 amended tax return Any other information a withholding agent requests to fulfill its reporting and withholding obligations. 2008 amended tax return Alternative procedure. 2008 amended tax return   Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U. 2008 amended tax return S. 2008 amended tax return exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. 2008 amended tax return To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. 2008 amended tax return You must receive the withholding statement with all the required information (other than item 5) prior to making the payment. 2008 amended tax return    This alternative procedure cannot be used for payments to U. 2008 amended tax return S. 2008 amended tax return non-exempt recipients. 2008 amended tax return Therefore, an NQI must always provide you with allocation information for all U. 2008 amended tax return S. 2008 amended tax return non-exempt recipients prior to a payment being made. 2008 amended tax return Pooled withholding information. 2008 amended tax return   If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. 2008 amended tax return A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. 2008 amended tax return For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). 2008 amended tax return The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment. 2008 amended tax return Failure to provide allocation information. 2008 amended tax return   If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. 2008 amended tax return You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules . 2008 amended tax return An NQI is deemed to have f
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The 2008 Amended Tax Return

2008 amended tax return 15. 2008 amended tax return   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. 2008 amended tax return More information. 2008 amended tax return Special SituationsException for sales to related persons. 2008 amended tax return Recapturing (Paying Back) a Federal Mortgage Subsidy Reminder Home sold with undeducted points. 2008 amended tax return  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. 2008 amended tax return See Mortgage ending early under Points in chapter 23. 2008 amended tax return Introduction This chapter explains the tax rules that apply when you sell your main home. 2008 amended tax return In most cases, your main home is the one in which you live most of the time. 2008 amended tax return 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). 2008 amended tax return See Excluding the Gain , later. 2008 amended tax return Generally, if you can exclude all the gain, you do not need to report the sale on your tax return. 2008 amended tax return If you have gain that cannot be excluded, it is taxable. 2008 amended tax return Report it on Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D (Form 1040). 2008 amended tax return You may also have to complete Form 4797, Sales of Business Property. 2008 amended tax return See Reporting the Sale , later. 2008 amended tax return If you have a loss on the sale, you generally cannot deduct it on your return. 2008 amended tax return However, you may need to report it. 2008 amended tax return See Reporting the Sale , later. 2008 amended tax return The following are main topics in this chapter. 2008 amended tax return Figuring gain or loss. 2008 amended tax return Basis. 2008 amended tax return Excluding the gain. 2008 amended tax return Ownership and use tests. 2008 amended tax return Reporting the sale. 2008 amended tax return Other topics include the following. 2008 amended tax return Business use or rental of home. 2008 amended tax return Recapturing a federal mortgage subsidy. 2008 amended tax return 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. 2008 amended tax return ” 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. 2008 amended tax return 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. 2008 amended tax return Land. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return See Vacant land under Main Home in Publication 523 for more information. 2008 amended tax return Example. 2008 amended tax return You buy a piece of land and move your main home to it. 2008 amended tax return Then you sell the land on which your main home was located. 2008 amended tax return This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. 2008 amended tax return More than one home. 2008 amended tax return   If you have more than one home, you can exclude gain only from the sale of your main home. 2008 amended tax return You must include in income gain from the sale of any other home. 2008 amended tax return 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. 2008 amended tax return Example 1. 2008 amended tax return You own two homes, one in New York and one in Florida. 2008 amended tax return 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. 2008 amended tax return In the absence of facts and circumstances indicating otherwise, the New York home is your main home. 2008 amended tax return You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. 2008 amended tax return Example 2. 2008 amended tax return You own a house, but you live in another house that you rent. 2008 amended tax return The rented house is your main home. 2008 amended tax return Example 3. 2008 amended tax return You own two homes, one in Virginia and one in New Hampshire. 2008 amended tax return In 2009 and 2010, you lived in the Virginia home. 2008 amended tax return In 2011 and 2012, you lived in the New Hampshire home. 2008 amended tax return In 2013, you lived again in the Virginia home. 2008 amended tax return Your main home in 2009, 2010, and 2013 is the Virginia home. 2008 amended tax return Your main home in 2011 and 2012 is the New Hampshire home. 2008 amended tax return You would be eligible to exclude gain from the sale of either home (but not both) in 2013. 2008 amended tax return Property used partly as your main home. 2008 amended tax return   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. 2008 amended tax return For details, see Business Use or Rental of Home , later. 2008 amended tax return 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. 2008 amended tax return Subtract the adjusted basis from the amount realized to get your gain or loss. 2008 amended tax return     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. 2008 amended tax return 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. 2008 amended tax return Payment by employer. 2008 amended tax return   You may have to sell your home because of a job transfer. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Option to buy. 2008 amended tax return   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. 2008 amended tax return If the option is not exercised, you must report the amount as ordinary income in the year the option expires. 2008 amended tax return Report this amount on Form 1040, line 21. 2008 amended tax return Form 1099-S. 2008 amended tax return   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. 2008 amended tax return   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. 2008 amended tax return Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. 2008 amended tax return Amount Realized The amount realized is the selling price minus selling expenses. 2008 amended tax return Selling expenses. 2008 amended tax return   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. 2008 amended tax return ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. 2008 amended tax return This adjusted basis must be determined before you can figure gain or loss on the sale of your home. 2008 amended tax return For information on how to figure your home's adjusted basis, see Determining Basis , later. 2008 amended tax return Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. 2008 amended tax return Gain on sale. 2008 amended tax return   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. 2008 amended tax return Loss on sale. 2008 amended tax return   If the amount realized is less than the adjusted basis, the difference is a loss. 2008 amended tax return A loss on the sale of your main home cannot be deducted. 2008 amended tax return Jointly owned home. 2008 amended tax return   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. 2008 amended tax return Separate returns. 2008 amended tax return   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. 2008 amended tax return Your ownership interest is generally determined by state law. 2008 amended tax return Joint owners not married. 2008 amended tax return   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. 2008 amended tax return Each of you applies the rules discussed in this chapter on an individual basis. 2008 amended tax return Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. 2008 amended tax return Foreclosure or repossession. 2008 amended tax return   If your home was foreclosed on or repossessed, you have a disposition. 2008 amended tax return See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, to determine if you have ordinary income, gain, or loss. 2008 amended tax return Abandonment. 2008 amended tax return   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. 2008 amended tax return Trading (exchanging) homes. 2008 amended tax return   If you trade your old home for another home, treat the trade as a sale and a purchase. 2008 amended tax return Example. 2008 amended tax return You owned and lived in a home with an adjusted basis of $41,000. 2008 amended tax return 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. 2008 amended tax return This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 – $41,000). 2008 amended tax return 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). 2008 amended tax return Transfer to spouse. 2008 amended tax return   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. 2008 amended tax return This is true even if you receive cash or other consideration for the home. 2008 amended tax return As a result, the rules in this chapter do not apply. 2008 amended tax return More information. 2008 amended tax return   If you need more information, see Transfer to spouse in Publication 523 and Property Settlements in Publication 504, Divorced or Separated Individuals. 2008 amended tax return Involuntary conversion. 2008 amended tax return   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. 2008 amended tax return 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 . 2008 amended tax return Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. 2008 amended tax return Your basis in your home is determined by how you got the home. 2008 amended tax return Generally, your basis is its cost if you bought it or built it. 2008 amended tax return If you got it in some other way (inheritance, gift, etc. 2008 amended tax return ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. 2008 amended tax return While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. 2008 amended tax return 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. 2008 amended tax return See Adjusted Basis , later. 2008 amended tax return You can find more information on basis and adjusted basis in chapter 13 of this publication and in Publication 523. 2008 amended tax return Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. 2008 amended tax return Purchase. 2008 amended tax return   If you bought your home, your basis is its cost to you. 2008 amended tax return This includes the purchase price and certain settlement or closing costs. 2008 amended tax return 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. 2008 amended tax return If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed in Publication 523. 2008 amended tax return Settlement fees or closing costs. 2008 amended tax return   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. 2008 amended tax return 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. 2008 amended tax return 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). 2008 amended tax return    Chapter 13 lists some of the settlement fees and closing costs that you can include in the basis of property, including your home. 2008 amended tax return It also lists some settlement costs that cannot be included in basis. 2008 amended tax return   Also see Publication 523 for additional items and a discussion of basis other than cost. 2008 amended tax return Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. 2008 amended tax return To figure your adjusted basis, you can use Worksheet 1 in Publication 523. 2008 amended tax return 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. 2008 amended tax return Increases to basis. 2008 amended tax return   These include the following. 2008 amended tax return Additions and other improvements that have a useful life of more than 1 year. 2008 amended tax return Special assessments for local improvements. 2008 amended tax return Amounts you spent after a casualty to restore damaged property. 2008 amended tax return Improvements. 2008 amended tax return   These add to the value of your home, prolong its useful life, or adapt it to new uses. 2008 amended tax return You add the cost of additions and other improvements to the basis of your property. 2008 amended tax return   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. 2008 amended tax return An addition to your house, such as a new deck, a sunroom, or a new garage, is also an improvement. 2008 amended tax return Repairs. 2008 amended tax return   These maintain your home in good condition but do not add to its value or prolong its life. 2008 amended tax return You do not add their cost to the basis of your property. 2008 amended tax return   Examples of repairs include repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes. 2008 amended tax return Decreases to basis. 2008 amended tax return   These include the following. 2008 amended tax return Discharge of qualified principal residence indebtedness that was excluded from income. 2008 amended tax return Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. 2008 amended tax return For details, see Publication 4681. 2008 amended tax return Gain you postponed from the sale of a previous home before May 7, 1997. 2008 amended tax return Deductible casualty losses. 2008 amended tax return Insurance payments you received or expect to receive for casualty losses. 2008 amended tax return Payments you received for granting an easement or right-of-way. 2008 amended tax return Depreciation allowed or allowable if you used your home for business or rental purposes. 2008 amended tax return Energy-related credits allowed for expenditures made on the residence. 2008 amended tax return (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. 2008 amended tax return ) Adoption credit you claimed for improvements added to the basis of your home. 2008 amended tax return Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return 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). 2008 amended tax return 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. 2008 amended tax return Discharges of qualified principal residence indebtedness. 2008 amended tax return   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. 2008 amended tax return This exclusion applies to discharges made after 2006 and before 2014. 2008 amended tax return 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. 2008 amended tax return   File Form 982 with your tax return. 2008 amended tax return See the form's instructions for detailed information. 2008 amended tax return Recordkeeping. 2008 amended tax return You should keep records to prove your home's adjusted basis. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Keep records proving the basis of both homes as long as they are needed for tax purposes. 2008 amended tax return 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. 2008 amended tax return Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. 2008 amended tax return 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. 2008 amended tax return To qualify, you must meet the ownership and use tests described later. 2008 amended tax return 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. 2008 amended tax return You can use Worksheet 2 in Publication 523 to figure the amount of your exclusion and your taxable gain, if any. 2008 amended tax return If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. 2008 amended tax return See Publication 505, Tax Withholding and Estimated Tax. 2008 amended tax return 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. 2008 amended tax return You meet the ownership test. 2008 amended tax return You meet the use test. 2008 amended tax return During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. 2008 amended tax return For details on gain allocated to periods of nonqualified use, see Periods of nonqualified use , later. 2008 amended tax return 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 . 2008 amended tax return Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. 2008 amended tax return 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). 2008 amended tax return Exception. 2008 amended tax return   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. 2008 amended tax return However, the maximum amount you may be able to exclude will be reduced. 2008 amended tax return See Reduced Maximum Exclusion , later. 2008 amended tax return Example 1—home owned and occupied for at least 2 years. 2008 amended tax return Mya bought and moved into her main home in September 2011. 2008 amended tax return She sold the home at a gain in October 2013. 2008 amended tax return 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. 2008 amended tax return She meets the ownership and use tests. 2008 amended tax return Example 2—ownership test met but use test not met. 2008 amended tax return Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. 2008 amended tax return He later sold the home for a gain. 2008 amended tax return He owned the home during the entire 5-year period ending on the date of sale. 2008 amended tax return He meets the ownership test but not the use test. 2008 amended tax return He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Temporary absence. 2008 amended tax return   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. 2008 amended tax return The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. 2008 amended tax return Example 1. 2008 amended tax return David Johnson, who is single, bought and moved into his home on February 1, 2011. 2008 amended tax return Each year during 2011 and 2012, David left his home for a 2-month summer vacation. 2008 amended tax return David sold the house on March 1, 2013. 2008 amended tax return Although the total time David used his home is less than 2 years (21 months), he meets the requirement and may exclude gain. 2008 amended tax return 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. 2008 amended tax return Example 2. 2008 amended tax return Professor Paul Beard, who is single, bought and moved into a house on August 18, 2010. 2008 amended tax return He lived in it as his main home continuously until January 5, 2012, when he went abroad for a 1-year sabbatical leave. 2008 amended tax return On February 6, 2013, 1 month after returning from the leave, Paul sold the house at a gain. 2008 amended tax return Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. 2008 amended tax return He cannot exclude any part of his gain, because he did not use the residence for the required 2 years. 2008 amended tax return Ownership and use tests met at different times. 2008 amended tax return   You can meet the ownership and use tests during different 2-year periods. 2008 amended tax return However, you must meet both tests during the 5-year period ending on the date of the sale. 2008 amended tax return Example. 2008 amended tax return Beginning in 2002, Helen Jones lived in a rented apartment. 2008 amended tax return The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. 2008 amended tax return In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. 2008 amended tax return On July 12, 2013, while still living in her daughter's home, she sold her condominium. 2008 amended tax return 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. 2008 amended tax return She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). 2008 amended tax return She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). 2008 amended tax return 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. 2008 amended tax return Cooperative apartment. 2008 amended tax return   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. 2008 amended tax return Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. 2008 amended tax return Exception for individuals with a disability. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Previous home destroyed or condemned. 2008 amended tax return   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. 2008 amended tax return This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home. 2008 amended tax return 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. 2008 amended tax return Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return (But see Special rules for joint returns , next. 2008 amended tax return ) Special rules for joint returns. 2008 amended tax return   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. 2008 amended tax return You are married and file a joint return for the year. 2008 amended tax return Either you or your spouse meets the ownership test. 2008 amended tax return Both you and your spouse meet the use test. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. 2008 amended tax return Example 1—one spouse sells a home. 2008 amended tax return Emily sells her home in June 2013 for a gain of $300,000. 2008 amended tax return She marries Jamie later in the year. 2008 amended tax return She meets the ownership and use tests, but Jamie does not. 2008 amended tax return Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. 2008 amended tax return The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. 2008 amended tax return Example 2—each spouse sells a home. 2008 amended tax return 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. 2008 amended tax return He meets the ownership and use tests on his home, but Emily does not. 2008 amended tax return Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. 2008 amended tax return However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. 2008 amended tax return Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. 2008 amended tax return 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. 2008 amended tax return Sale of main home by surviving spouse. 2008 amended tax return   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. 2008 amended tax return   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. 2008 amended tax return The sale or exchange took place after 2008. 2008 amended tax return The sale or exchange took place no more than 2 years after the date of death of your spouse. 2008 amended tax return You have not remarried. 2008 amended tax return You and your spouse met the use test at the time of your spouse's death. 2008 amended tax return You or your spouse met the ownership test at the time of your spouse's death. 2008 amended tax return Neither you nor your spouse excluded gain from the sale of another home during the last 2 years. 2008 amended tax return Example. 2008 amended tax return   Harry owned and used a house as his main home since 2009. 2008 amended tax return Harry and Wilma married on July 1, 2013, and from that date they use Harry's house as their main home. 2008 amended tax return Harry died on August 15, 2013, and Wilma inherited the property. 2008 amended tax return Wilma sold the property on September 3, 2013, at which time she had not remarried. 2008 amended tax return 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. 2008 amended tax return Home transferred from spouse. 2008 amended tax return   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. 2008 amended tax return Use of home after divorce. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. 2008 amended tax return A change in place of employment. 2008 amended tax return Health. 2008 amended tax return Unforeseen circumstances. 2008 amended tax return Unforeseen circumstances. 2008 amended tax return   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. 2008 amended tax return   See Publication 523 for more information and to use Worksheet 3 to figure your reduced maximum exclusion. 2008 amended tax return 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. 2008 amended tax return But you must meet the ownership and use tests. 2008 amended tax return Periods of nonqualified use. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return Exceptions. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Gain from the sale or exchange of property allocable to nonqualified use will not qualify for the exclusion. 2008 amended tax return Calculation. 2008 amended tax return   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. 2008 amended tax return Example 1. 2008 amended tax return On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. 2008 amended tax return 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. 2008 amended tax return The house was rented from June 1, 2009, to March 31, 2011. 2008 amended tax return Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return Amy divides 668 by 2,080 and obtains a decimal (rounded to at least three decimal places) of 0. 2008 amended tax return 321. 2008 amended tax return 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. 2008 amended tax return 321. 2008 amended tax return Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain. 2008 amended tax return Example 2. 2008 amended tax return William owned and used a house as his main home from 2007 through 2010. 2008 amended tax return On January 1, 2011, he moved to another state. 2008 amended tax return He rented his house from that date until April 30, 2013, when he sold it. 2008 amended tax return 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. 2008 amended tax return He must report the sale on Form 4797 because it was rental property at the time of sale. 2008 amended tax return 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. 2008 amended tax return Because he met the ownership and use tests, he can exclude gain up to $250,000. 2008 amended tax return 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. 2008 amended tax return Depreciation after May 6, 1997. 2008 amended tax return   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. 2008 amended tax return 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. 2008 amended tax return See Publication 544 for more information. 2008 amended tax return Property used partly for business or rental. 2008 amended tax return   If you used property partly as a home and partly for business or to produce rental income, see Publication 523. 2008 amended tax return 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. 2008 amended tax return If any of these conditions apply, report the entire gain or loss. 2008 amended tax return For details on how to report the gain or loss, see the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949. 2008 amended tax return 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). 2008 amended tax return See Business Use or Rental of Home in Publication 523 and the Instructions for Form 4797. 2008 amended tax return Installment sale. 2008 amended tax return    Some sales are made under arrangements that provide for part or all of the selling price to be paid in a later year. 2008 amended tax return These sales are called “installment sales. 2008 amended tax return ” 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. 2008 amended tax return You may be able to report the part of the gain you cannot exclude on the installment basis. 2008 amended tax return    Use Form 6252, Installment Sale Income, to report the sale. 2008 amended tax return Enter your exclusion on line 15 of Form 6252. 2008 amended tax return Seller-financed mortgage. 2008 amended tax return   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. 2008 amended tax return You must separately report as interest income the interest you receive as part of each payment. 2008 amended tax return 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). 2008 amended tax return The buyer must give you his or her SSN, and you must give the buyer your SSN. 2008 amended tax return Failure to meet these requirements may result in a $50 penalty for each failure. 2008 amended tax return If either you or the buyer does not have and is not eligible to get an SSN, see Social Security Number in chapter 1. 2008 amended tax return More information. 2008 amended tax return   For more information on installment sales, see Publication 537, Installment Sales. 2008 amended tax return Special Situations The situations that follow may affect your exclusion. 2008 amended tax return Sale of home acquired in a like-kind exchange. 2008 amended tax return   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. 2008 amended tax return Gain from a like-kind exchange is not taxable at the time of the exchange. 2008 amended tax return This means that gain will not be taxed until you sell or otherwise dispose of the property you receive. 2008 amended tax return 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. 2008 amended tax return For more information about like-kind exchanges, see Publication 544, Sales and Other Dispositions of Assets. 2008 amended tax return Home relinquished in a like-kind exchange. 2008 amended tax return   If you use your main home partly for business or rental purposes and then exchange the home for another property, see Publication 523. 2008 amended tax return Expatriates. 2008 amended tax return   You cannot claim the exclusion if the expatriation tax applies to you. 2008 amended tax return The expatriation tax applies to certain U. 2008 amended tax return S. 2008 amended tax return citizens who have renounced their citizenship (and to certain long-term residents who have ended their residency). 2008 amended tax return For more information about the expatriation tax, see Expatriation Tax in chapter 4 of Publication 519, U. 2008 amended tax return S. 2008 amended tax return Tax Guide for Aliens. 2008 amended tax return Home destroyed or condemned. 2008 amended tax return   If your home was destroyed or condemned, any gain (for example, because of insurance proceeds you received) qualifies for the exclusion. 2008 amended tax return   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. 2008 amended tax return Sale of remainder interest. 2008 amended tax return   Subject to the other rules in this chapter, you can choose to exclude gain from the sale of a remainder interest in your home. 2008 amended tax return 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. 2008 amended tax return Exception for sales to related persons. 2008 amended tax return   You cannot exclude gain from the sale of a remainder interest in your home to a related person. 2008 amended tax return Related persons include your brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc. 2008 amended tax return ), and lineal descendants (children, grandchildren, etc. 2008 amended tax return ). 2008 amended tax return Related persons also include certain corporations, partnerships, trusts, and exempt organizations. 2008 amended tax return 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. 2008 amended tax return You recapture the benefit by increasing your federal income tax for the year of the sale. 2008 amended tax return 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. 2008 amended tax return Loans subject to recapture rules. 2008 amended tax return   The recapture applies to loans that: Came from the proceeds of qualified mortgage bonds, or Were based on mortgage credit certificates. 2008 amended tax return The recapture also applies to assumptions of these loans. 2008 amended tax return When recapture applies. 2008 amended tax return   Recapture of the federal mortgage subsidy applies only if you meet both of the following conditions. 2008 amended tax return You sell or otherwise dispose of your home at a gain within the first 9 years after the date you close your mortgage loan. 2008 amended tax return 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). 2008 amended tax return When recapture does not apply. 2008 amended tax return   Recapture does not apply in any of the following situations. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return For more information, see Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. 2008 amended tax return Also see Publication 4492-B, Information for Affected Taxpayers in the Midwestern Disaster Areas. 2008 amended tax return The home is disposed of as a result of your death. 2008 amended tax return You dispose of the home more than 9 years after the date you closed your mortgage loan. 2008 amended tax return You transfer the home to your spouse, or to your former spouse incident to a divorce, where no gain is included in your income. 2008 amended tax return You dispose of the home at a loss. 2008 amended tax return 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. 2008 amended tax return 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. 2008 amended tax return For more information, see Replacement Period in Publication 547. 2008 amended tax return You refinance your mortgage loan (unless you later meet the conditions listed previously under When recapture applies ). 2008 amended tax return Notice of amounts. 2008 amended tax return   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. 2008 amended tax return How to figure and report the recapture. 2008 amended tax return    The recapture tax is figured on Form 8828. 2008 amended tax return 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. 2008 amended tax return Attach Form 8828 to your Form 1040. 2008 amended tax return For more information, see Form 8828 and its instructions. 2008 amended tax return Prev  Up  Next   Home   More Online Publications