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Nj 1040nr

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Nj 1040nr

Nj 1040nr 1. Nj 1040nr   Rental Income and Expenses (If No Personal Use of Dwelling) Table of Contents Rental IncomeWhen To Report Types of Income Rental ExpensesWhen To Deduct Types of Expenses This chapter discusses the various types of rental income and expenses for a residential rental activity with no personal use of the dwelling. Nj 1040nr Generally, each year you will report all income and deduct all out-of-pocket expenses in full. Nj 1040nr The deduction to recover the cost of your rental property—depreciation—is taken over a prescribed number of years, and is discussed in chapter 2, Depreciation of Rental Property. Nj 1040nr If your rental income is from property you also use personally or rent to someone at less than a fair rental price, first read the information in chapter 5 , Personal Use of Dwelling Unit (Including Vacation Home). Nj 1040nr Rental Income In most cases, you must include in your gross income all amounts you receive as rent. Nj 1040nr Rental income is any payment you receive for the use or occupation of property. Nj 1040nr In addition to amounts you receive as normal rental payments, there are other amounts that may be rental income. Nj 1040nr When To Report When you report rental income on your tax return generally depends on whether you are a cash basis taxpayer or use an accrual method. Nj 1040nr Most individual taxpayers use the cash method. Nj 1040nr Cash method. Nj 1040nr   You are a cash basis taxpayer if you report income on your return in the year you actually or constructively receive it, regardless of when it was earned. Nj 1040nr You constructively receive income when it is made available to you, for example, by being credited to your bank account. Nj 1040nr Accrual method. Nj 1040nr    If you are an accrual basis taxpayer, you generally report income when you earn it, rather than when you receive it. Nj 1040nr You generally deduct your expenses when you incur them, rather than when you pay them. Nj 1040nr More information. Nj 1040nr   See Publication 538, Accounting Periods and Methods, for more information about when you constructively receive income and accrual methods of accounting. Nj 1040nr Types of Income The following are common types of rental income. Nj 1040nr Advance rent. Nj 1040nr   Advance rent is any amount you receive before the period that it covers. Nj 1040nr Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use. Nj 1040nr Example. Nj 1040nr On March 18, 2013, you signed a 10-year lease to rent your property. Nj 1040nr During 2013, you received $9,600 for the first year's rent and $9,600 as rent for the last year of the lease. Nj 1040nr You must include $19,200 in your rental income in the first year. Nj 1040nr Canceling a lease. Nj 1040nr   If your tenant pays you to cancel a lease, the amount you receive is rent. Nj 1040nr Include the payment in your income in the year you receive it regardless of your method of accounting. Nj 1040nr Expenses paid by tenant. Nj 1040nr   If your tenant pays any of your expenses, those payments are rental income. Nj 1040nr Because you must include this amount in income, you can also deduct the expenses if they are deductible rental expenses. Nj 1040nr For more information, see Rental Expenses , later. Nj 1040nr Example 1. Nj 1040nr Your tenant pays the water and sewage bill for your rental property and deducts the amount from the normal rent payment. Nj 1040nr Under the terms of the lease, your tenant does not have to pay this bill. Nj 1040nr Include the utility bill paid by the tenant and any amount received as a rent payment in your rental income. Nj 1040nr You can deduct the utility payment made by your tenant as a rental expense. Nj 1040nr Example 2. Nj 1040nr While you are out of town, the furnace in your rental property stops working. Nj 1040nr Your tenant pays for the necessary repairs and deducts the repair bill from the rent payment. Nj 1040nr Include the repair bill paid by the tenant and any amount received as a rent payment in your rental income. Nj 1040nr You can deduct the repair payment made by your tenant as a rental expense. Nj 1040nr Property or services. Nj 1040nr   If you receive property or services as rent, instead of money, include the fair market value of the property or services in your rental income. Nj 1040nr   If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary. Nj 1040nr Example. Nj 1040nr Your tenant is a house painter. Nj 1040nr He offers to paint your rental property instead of paying 2 months rent. Nj 1040nr You accept his offer. Nj 1040nr Include in your rental income the amount the tenant would have paid for 2 months rent. Nj 1040nr You can deduct that same amount as a rental expense for painting your property. Nj 1040nr Security deposits. Nj 1040nr   Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. Nj 1040nr But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year. Nj 1040nr    If an amount called a security deposit is to be used as a final payment of rent, it is advance rent. Nj 1040nr Include it in your income when you receive it. Nj 1040nr Other Sources of Rental Income Lease with option to buy. Nj 1040nr   If the rental agreement gives your tenant the right to buy your rental property, the payments you receive under the agreement are generally rental income. Nj 1040nr If your tenant exercises the right to buy the property, the payments you receive for the period after the date of sale are considered part of the selling price. Nj 1040nr Part interest. Nj 1040nr   If you own a part interest in rental property, you must report your part of the rental income from the property. Nj 1040nr Rental of property also used as your home. Nj 1040nr   If you rent property that you also use as your home and you rent it less than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses. Nj 1040nr However, you can deduct on Schedule A (Form 1040), Itemized Deductions, the interest, taxes, and casualty and theft losses that are allowed for nonrental property. Nj 1040nr See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Nj 1040nr Rental Expenses In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income. Nj 1040nr Personal use of rental property. Nj 1040nr   If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Nj 1040nr Also, your rental expense deductions may be limited. Nj 1040nr See chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Nj 1040nr Part interest. Nj 1040nr   If you own a part interest in rental property, you can deduct expenses you paid according to your percentage of ownership. Nj 1040nr Example. Nj 1040nr Roger owns a one-half undivided interest in a rental house. Nj 1040nr Last year he paid $968 for necessary repairs on the property. Nj 1040nr Roger can deduct $484 (50% × $968) as a rental expense. Nj 1040nr He is entitled to reimbursement for the remaining half from the co-owner. Nj 1040nr When To Deduct You generally deduct your rental expenses in the year you pay them. Nj 1040nr If you use the accrual method, see Publication 538 for more information. Nj 1040nr Types of Expenses Listed below are the most common rental expenses. Nj 1040nr Advertising. Nj 1040nr Auto and travel expenses. Nj 1040nr Cleaning and maintenance. Nj 1040nr Commissions. Nj 1040nr Depreciation. Nj 1040nr Insurance. Nj 1040nr Interest (other). Nj 1040nr Legal and other professional fees. Nj 1040nr Local transportation expenses. Nj 1040nr Management fees. Nj 1040nr Mortgage interest paid to banks, etc. Nj 1040nr Points. Nj 1040nr Rental payments. Nj 1040nr Repairs. Nj 1040nr Taxes. Nj 1040nr Utilities. Nj 1040nr Some of these expenses, as well as other less common ones, are discussed below. Nj 1040nr Depreciation. Nj 1040nr   Depreciation is a capital expense. Nj 1040nr It is the mechanism for recovering your cost in an income producing property and must be taken over the expected life of the property. Nj 1040nr   You can begin to depreciate rental property when it is ready and available for rent. Nj 1040nr See Placed in Service under When Does Depreciation Begin and End in chapter 2. Nj 1040nr Insurance premiums paid in advance. Nj 1040nr   If you pay an insurance premium for more than one year in advance, for each year of coverage you can deduct the part of the premium payment that will apply to that year. Nj 1040nr You cannot deduct the total premium in the year you pay it. Nj 1040nr See chapter 6 of Publication 535 for information on deductible premiums. Nj 1040nr Interest expense. Nj 1040nr   You can deduct mortgage interest you pay on your rental property. Nj 1040nr When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Nj 1040nr Chapter 4 of Publication 535 explains mortgage interest in detail. Nj 1040nr Expenses paid to obtain a mortgage. Nj 1040nr   Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. Nj 1040nr These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property. Nj 1040nr Form 1098, Mortgage Interest Statement. Nj 1040nr   If you paid $600 or more of mortgage interest on your rental property to any one person, you should receive a Form 1098 or similar statement showing the interest you paid for the year. Nj 1040nr If you and at least one other person (other than your spouse if you file a joint return) were liable for, and paid interest on, the mortgage, and the other person received the Form 1098, report your share of the interest on Schedule E (Form 1040), line 13. Nj 1040nr Attach a statement to your return showing the name and address of the other person. Nj 1040nr On the dotted line next to line 13, enter “See attached. Nj 1040nr ” Legal and other professional fees. Nj 1040nr   You can deduct, as a rental expense, legal and other professional expenses such as tax return preparation fees you paid to prepare Schedule E, Part I. Nj 1040nr For example, on your 2013 Schedule E you can deduct fees paid in 2013 to prepare Part I of your 2012 Schedule E. Nj 1040nr You can also deduct, as a rental expense, any expense (other than federal taxes and penalties) you paid to resolve a tax underpayment related to your rental activities. Nj 1040nr Local benefit taxes. Nj 1040nr   In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. Nj 1040nr These charges are nondepreciable capital expenditures and must be added to the basis of your property. Nj 1040nr However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits. Nj 1040nr Local transportation expenses. Nj 1040nr   You may be able to deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property. Nj 1040nr However, transportation expenses incurred to travel between your home and a rental property generally constitute nondeductible commuting costs unless you use your home as your principal place of business. Nj 1040nr See Publication 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business. Nj 1040nr   Generally, if you use your personal car, pickup truck, or light van for rental activities, you can deduct the expenses using one of two methods: actual expenses or the standard mileage rate. Nj 1040nr For 2013, the standard mileage rate for business use is 56. Nj 1040nr 5 cents per mile. Nj 1040nr For more information, see chapter 4 of Publication 463. Nj 1040nr    To deduct car expenses under either method, you must keep records that follow the rules in chapter 5 of Publication 463. Nj 1040nr In addition, you must complete Form 4562, Part V, and attach it to your tax return. Nj 1040nr Pre-rental expenses. Nj 1040nr   You can deduct your ordinary and necessary expenses for managing, conserving, or maintaining rental property from the time you make it available for rent. Nj 1040nr Rental of equipment. Nj 1040nr   You can deduct the rent you pay for equipment that you use for rental purposes. Nj 1040nr However, in some cases, lease contracts are actually purchase contracts. Nj 1040nr If so, you cannot deduct these payments. Nj 1040nr You can recover the cost of purchased equipment through depreciation. Nj 1040nr Rental of property. Nj 1040nr   You can deduct the rent you pay for property that you use for rental purposes. Nj 1040nr If you buy a leasehold for rental purposes, you can deduct an equal part of the cost each year over the term of the lease. Nj 1040nr Travel expenses. Nj 1040nr   You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. Nj 1040nr You must properly allocate your expenses between rental and nonrental activities. Nj 1040nr You cannot deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. Nj 1040nr The cost of improvements is recovered by taking depreciation. Nj 1040nr For information on travel expenses, see chapter 1 of Publication 463. Nj 1040nr    To deduct travel expenses, you must keep records that follow the rules in chapter 5 of Publication 463. Nj 1040nr Uncollected rent. Nj 1040nr   If you are a cash basis taxpayer, do not deduct uncollected rent. Nj 1040nr Because you have not included it in your income, it is not deductible. Nj 1040nr   If you use an accrual method, report income when you earn it. Nj 1040nr If you are unable to collect the rent, you may be able to deduct it as a business bad debt. Nj 1040nr See chapter 10 of Publication 535 for more information about business bad debts. Nj 1040nr Vacant rental property. Nj 1040nr   If you hold property for rental purposes, you may be able to deduct your ordinary and necessary expenses (including depreciation) for managing, conserving, or maintaining the property while the property is vacant. Nj 1040nr However, you cannot deduct any loss of rental income for the period the property is vacant. Nj 1040nr Vacant while listed for sale. Nj 1040nr   If you sell property you held for rental purposes, you can deduct the ordinary and necessary expenses for managing, conserving, or maintaining the property until it is sold. Nj 1040nr If the property is not held out and available for rent while listed for sale, the expenses are not deductible rental expenses. Nj 1040nr Points The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. Nj 1040nr These charges are also called loan origination fees, maximum loan charges, or premium charges. Nj 1040nr Any of these charges (points) that are solely for the use of money are interest. Nj 1040nr Because points are prepaid interest, you generally cannot deduct the full amount in the year paid, but must deduct the interest over the term of the loan. Nj 1040nr The method used to figure the amount of points you can deduct each year follows the original issue discount (OID) rules. Nj 1040nr In this case, points are equivalent to OID, which is the difference between: The amount borrowed (redemption price at maturity, or principal) and The proceeds (issue price). Nj 1040nr The first step is to determine whether your total OID (which you may have on bonds or other investments in addition to the mortgage loan), including the OID resulting from the points, is insignificant or de minimis. Nj 1040nr If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct. Nj 1040nr De minimis OID. Nj 1040nr   The OID is de minimis if it is less than one-fourth of 1% (. Nj 1040nr 0025) of the stated redemption price at maturity (principal amount of the loan) multiplied by the number of full years from the date of original issue to maturity (term of the loan). Nj 1040nr   If the OID is de minimis, you can choose one of the following ways to figure the amount of points you can deduct each year. Nj 1040nr On a constant-yield basis over the term of the loan. Nj 1040nr On a straight line basis over the term of the loan. Nj 1040nr In proportion to stated interest payments. Nj 1040nr In its entirety at maturity of the loan. Nj 1040nr You make this choice by deducting the OID (points) in a manner consistent with the method chosen on your timely filed tax return for the tax year in which the loan is issued. Nj 1040nr Example. Nj 1040nr Carol Madison took out a $100,000 mortgage loan on January 1, 2013, to buy a house she will use as a rental during 2013. Nj 1040nr The loan is to be repaid over 30 years. Nj 1040nr During 2013, Carol paid $10,000 of mortgage interest (stated interest) to the lender. Nj 1040nr When the loan was made, she paid $1,500 in points to the lender. Nj 1040nr The points reduced the principal amount of the loan from $100,000 to $98,500, resulting in $1,500 of OID. Nj 1040nr Carol determines that the points (OID) she paid are de minimis based on the following computation. Nj 1040nr Redemption price at maturity (principal amount of the loan) $100,000 Multiplied by: The term of the  loan in complete years ×30 Multiplied by ×. Nj 1040nr 0025 De minimis amount $7,500 The points (OID) she paid ($1,500) are less than the de minimis amount ($7,500). Nj 1040nr Therefore, Carol has de minimis OID and she can choose one of the four ways discussed earlier to figure the amount she can deduct each year. Nj 1040nr Under the straight line method, she can deduct $50 each year for 30 years. Nj 1040nr Constant-yield method. Nj 1040nr   If the OID is not de minimis, you must use the constant-yield method to figure how much you can deduct each year. Nj 1040nr   You figure your deduction for the first year in the following manner. Nj 1040nr Determine the issue price of the loan. Nj 1040nr If you paid points on the loan, the issue price generally is the difference between the principal and the points. Nj 1040nr Multiply the result in (1) by the yield to maturity (defined later). Nj 1040nr Subtract any qualified stated interest payments (defined later) from the result in (2). Nj 1040nr This is the OID you can deduct in the first year. Nj 1040nr Yield to maturity (YTM). Nj 1040nr   This rate is generally shown in the literature you receive from your lender. Nj 1040nr If you do not have this information, consult your lender or tax advisor. Nj 1040nr In general, the YTM is the discount rate that, when used in computing the present value of all principal and interest payments, produces an amount equal to the principal amount of the loan. Nj 1040nr Qualified stated interest (QSI). Nj 1040nr   In general, this is the stated interest that is unconditionally payable in cash or property (other than another loan of the issuer) at least annually over the term of the loan at a fixed rate. Nj 1040nr Example—Year 1. Nj 1040nr The facts are the same as in the previous example. Nj 1040nr The yield to maturity on Carol's loan is 10. Nj 1040nr 2467%, compounded annually. Nj 1040nr She figured the amount of points (OID) she could deduct in 2013 as follows. Nj 1040nr Principal amount of the loan $100,000 Minus: Points (OID) –1,500 Issue price of the loan $98,500 Multiplied by: YTM × . Nj 1040nr 102467 Total 10,093 Minus: QSI –10,000 Points (OID) deductible in 2013 $93 To figure your deduction in any subsequent year, you start with the adjusted issue price. Nj 1040nr To get the adjusted issue price, add to the issue price figured in Year 1 any OID previously deducted. Nj 1040nr Then follow steps (2) and (3), earlier. Nj 1040nr Example—Year 2. Nj 1040nr Carol figured the deduction for 2014 as follows. Nj 1040nr Issue price $98,500 Plus: Points (OID) deducted  in 2013 +93 Adjusted issue price $98,593 Multiplied by: YTM × . Nj 1040nr 102467 Total 10,103 Minus: QSI –10,000 Points (OID) deductible in 2014 $103 Loan or mortgage ends. Nj 1040nr    If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. Nj 1040nr A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. Nj 1040nr However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan. Nj 1040nr Points when loan refinance is more than the previous outstanding balance. Nj 1040nr   When you refinance a rental property for more than the previous outstanding balance, the portion of the points allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Nj 1040nr For example, if an individual refinanced a loan with a balance of $100,000, the amount of the new loan was $120,000, and the taxpayer used $20,000 to purchase a car, points allocable to the $20,000 would be treated as nondeductible personal interest. Nj 1040nr Repairs and Improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. Nj 1040nr Improvements. Nj 1040nr   You must capitalize any expense you pay to improve your rental property. Nj 1040nr An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Nj 1040nr Betterments. Nj 1040nr   Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. Nj 1040nr Restoration. Nj 1040nr   Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition. Nj 1040nr Adaptation. Nj 1040nr   Expenses that may be for adaptation include expenses for altering your property to a use that is not consistent with the intended ordinary use of your property when you began renting the property. Nj 1040nr Separate the costs of repairs and improvements, and keep accurate records. Nj 1040nr You will need to know the cost of improvements when you sell or depreciate your property. Nj 1040nr The expenses you capitalize for improving your property can generally be depreciated as if the improvement were separate property. Nj 1040nr Table 1-1. Nj 1040nr Examples of Improvements Additions Bedroom Bathroom Deck Garage Porch Patio  Lawn & Grounds Landscaping Driveway Walkway Fence Retaining wall Sprinkler system Swimming pool Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system   Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances Kitchen modernization Flooring Wall-to-wall carpeting  Insulation Attic Walls, floor Pipes, duct work Prev  Up  Next   Home   More Online Publications
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Nj 1040nr Publication 523 - Main Content Table of Contents Main HomeVacant land. Nj 1040nr Factors used to determine main home. Nj 1040nr Figuring Gain or LossSelling Price Amount Realized Adjusted Basis Amount of Gain or Loss Dispositions Other Than Sales Determining BasisCost As Basis Basis Other Than Cost Adjusted Basis Excluding the GainMaximum Exclusion Ownership and Use Tests Reduced Maximum Exclusion Nonqualified Use Business Use or Rental of HomeUnrecaptured section 1250 gain. Nj 1040nr Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. Nj 1040nr Individual taxpayer identification number (ITIN). Nj 1040nr More information. Nj 1040nr Comprehensive Examples Special SituationsException for sales to related persons. Nj 1040nr Deducting Taxes in the Year of SaleForm 1099-S. Nj 1040nr More information. Nj 1040nr Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. Nj 1040nr Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. Nj 1040nr ” 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. Nj 1040nr To exclude gain under the rules in this publication, you in most cases must have owned and lived in the property as your main home for at least 2 years during the 5-year period ending on the date of sale. Nj 1040nr Land. Nj 1040nr   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. Nj 1040nr Example. Nj 1040nr You buy a piece of land and move your main home to it. Nj 1040nr Then, you sell the land on which your main home was located. Nj 1040nr This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Nj 1040nr Vacant land. Nj 1040nr   The sale of vacant land is not a sale of your main home unless: The vacant land is adjacent to land containing your home, You owned and used the vacant land as part of your main home, The separate sale of your home satisfies the requirements for exclusion and occurs within 2 years before or 2 years after the date of the sale of the vacant land, and The other requirements for excluding gain from the sale of a main home have been satisfied with respect to the vacant land. Nj 1040nr If these requirements are met, the sale of the home and the sale of the vacant land are treated as one sale and only one maximum exclusion can be applied to any gain. Nj 1040nr See Excluding the Gain , later. Nj 1040nr The destruction of your home is treated as a sale of your home. Nj 1040nr As a result, you may be able to meet these requirements if you sell vacant land used as a part of your main home within 2 years from the date of the destruction of your main home. Nj 1040nr For information, see Publication 547. Nj 1040nr More than one home. Nj 1040nr   If you have more than one home, you can exclude gain only from the sale of your main home. Nj 1040nr You must include in income the gain from the sale of any other home. Nj 1040nr If you have two homes and live in each of them, your main home is ordinarily the one you live in most of the time during the year. Nj 1040nr Example 1. Nj 1040nr You own two homes, one in New York and one in Florida. Nj 1040nr 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. Nj 1040nr In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Nj 1040nr You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Nj 1040nr Example 2. Nj 1040nr You own a house, but you live in another house that you rent. Nj 1040nr The rented house is your main home. Nj 1040nr Example 3. Nj 1040nr You own two homes, one in Virginia and one in New Hampshire. Nj 1040nr In 2009 and 2010, you lived in the Virginia home. Nj 1040nr In 2011 and 2012, you lived in the New Hampshire home. Nj 1040nr In 2013, you lived again in the Virginia home. Nj 1040nr Your main home in 2009, 2010, and 2013 is the Virginia home. Nj 1040nr Your main home in 2011 and 2012 is the New Hampshire home. Nj 1040nr You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Nj 1040nr Factors used to determine main home. Nj 1040nr   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. Nj 1040nr Those factors include the following. Nj 1040nr Your place of employment. Nj 1040nr The location of your family members' main home. Nj 1040nr Your mailing address for bills and correspondence. Nj 1040nr The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. Nj 1040nr The location of the banks you use. Nj 1040nr The location of recreational clubs and religious organizations of which you are a member. Nj 1040nr Property used partly as your main home. Nj 1040nr   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. Nj 1040nr For details, see Business Use or Rental of Home , later. Nj 1040nr 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. Nj 1040nr Subtract the adjusted basis from the amount realized to get your gain or loss. Nj 1040nr     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. Nj 1040nr   Gain is the excess of the amount realized over the adjusted basis of the property. Nj 1040nr Loss. Nj 1040nr   Loss is the excess of the adjusted basis over the amount realized for the property. Nj 1040nr Selling Price The selling price is the total amount you receive for your home. Nj 1040nr 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. Nj 1040nr Personal property. Nj 1040nr   The selling price of your home does not include amounts you received for personal property sold with your home. Nj 1040nr Personal property is property that is not a permanent part of the home. Nj 1040nr Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. Nj 1040nr Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). Nj 1040nr Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. Nj 1040nr Payment by employer. Nj 1040nr   You may have to sell your home because of a job transfer. Nj 1040nr 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. Nj 1040nr Your employer will include it as wages in box 1 of your Form W-2 and you will include it in your income on Form 1040, line 7, or on Form 1040NR, line 8. Nj 1040nr Option to buy. Nj 1040nr   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. Nj 1040nr If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Nj 1040nr Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. Nj 1040nr Form 1099-S. Nj 1040nr   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. Nj 1040nr   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. Nj 1040nr Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Nj 1040nr Amount Realized The amount realized is the selling price minus selling expenses. Nj 1040nr Selling expenses. Nj 1040nr   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Nj 1040nr ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Nj 1040nr This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Nj 1040nr For information on how to figure your home's adjusted basis, see Determining Basis , later. Nj 1040nr Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Nj 1040nr Gain on sale. Nj 1040nr   If the amount realized is more than the adjusted basis, the difference is a gain and, except for any part you can exclude, generally is taxable. Nj 1040nr Loss on sale. Nj 1040nr   If the amount realized is less than the adjusted basis, the difference is a loss. Nj 1040nr Generally, a loss on the sale of your main home cannot be deducted. Nj 1040nr Jointly owned home. Nj 1040nr   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Nj 1040nr Separate returns. Nj 1040nr   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Nj 1040nr Your ownership interest is generally determined by state law. Nj 1040nr Joint owners not married. Nj 1040nr   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. Nj 1040nr Each of you applies the rules discussed in this publication on an individual basis. Nj 1040nr Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Nj 1040nr Foreclosure or repossession. Nj 1040nr   If your home was foreclosed on or repossessed, you have a disposition. Nj 1040nr See Publication 4681 to determine if you have ordinary income, gain, or loss. Nj 1040nr More information. Nj 1040nr   If part of a home is used for business or rental purposes, see Foreclosures and Repossessions in chapter 1 of Publication 544 for more information. Nj 1040nr Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. Nj 1040nr Abandonment. Nj 1040nr   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Nj 1040nr Trading (exchanging) homes. Nj 1040nr   If you trade your home for another home, treat the trade as a sale and a purchase. Nj 1040nr Example. Nj 1040nr You owned and lived in a home with an adjusted basis of $41,000. Nj 1040nr 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. Nj 1040nr This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). Nj 1040nr 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). Nj 1040nr Transfer to spouse. Nj 1040nr   If you transfer your home to your spouse or you transfer it to your former spouse incident to your divorce, you in most cases have no gain or loss (unless the Exception, discussed next, applies). Nj 1040nr This is true even if you receive cash or other consideration for the home. Nj 1040nr As a result, the rules explained in this publication do not apply. Nj 1040nr   If you owned your home jointly with your spouse and transfer your interest in the home to your spouse, or to your former spouse incident to your divorce, the same rule applies. Nj 1040nr You have no gain or loss. Nj 1040nr Exception. Nj 1040nr   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. Nj 1040nr In that case, you generally will have a gain or loss. Nj 1040nr More information. Nj 1040nr    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. Nj 1040nr Involuntary conversion. Nj 1040nr   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. Nj 1040nr This is treated as a sale and you may be able to exclude all or part of any gain from the destruction or condemnation of your home, as explained later under Special Situations (see Home destroyed or condemned ). Nj 1040nr Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Nj 1040nr Your basis in your home is determined by how you got the home. Nj 1040nr Generally, your basis is its cost if you bought it or built it. Nj 1040nr If you got it in some other way (inheritance, gift, etc. Nj 1040nr ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Nj 1040nr While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Nj 1040nr 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. Nj 1040nr To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. Nj 1040nr Filled-in examples of that worksheet are included in the Comprehensive Examples , later. Nj 1040nr Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Nj 1040nr Purchase. Nj 1040nr   If you bought your home, your basis is its cost to you. Nj 1040nr This includes the purchase price and certain settlement or closing costs. Nj 1040nr 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. Nj 1040nr If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. Nj 1040nr Seller-paid points. Nj 1040nr   If the person who sold you your home paid points on your loan, you may have to reduce your home's basis by the amount of the points, as shown in the following chart. Nj 1040nr    IF you bought your home. Nj 1040nr . Nj 1040nr . Nj 1040nr THEN reduce your home's basis by the seller-paid points. Nj 1040nr . Nj 1040nr . Nj 1040nr after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. Nj 1040nr after April 3, 1994 even if you did not deduct them. Nj 1040nr Settlement fees or closing costs. Nj 1040nr   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Nj 1040nr 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. Nj 1040nr 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). Nj 1040nr   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Nj 1040nr   Some of the settlement fees or closing costs that you can include in your basis are: Abstract fees (abstract of title fees), Charges for installing utility services, Legal fees (including fees for the title search and preparing the sales contract and deed), Recording fees, Survey fees, Transfer or stamp taxes, Owner's title insurance, and Any amounts the seller owes that you agree to pay, such as: Certain real estate taxes (discussed later), Back interest, Recording or mortgage fees, Charges for improvements or repairs, and Sales commissions. Nj 1040nr   Some settlement fees and closing costs you cannot include in your basis are: Fire insurance premiums, Rent for occupancy of the house before closing, Charges for utilities or other services related to occupancy of the house before closing, Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994), Charges connected with getting a mortgage loan, such as: Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs), Loan assumption fees, Cost of a credit report, Fee for an appraisal required by a lender, and Fees for refinancing a mortgage. Nj 1040nr Real estate taxes. Nj 1040nr   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. Nj 1040nr    IF. Nj 1040nr . Nj 1040nr . Nj 1040nr AND. Nj 1040nr . Nj 1040nr . Nj 1040nr THEN the taxes. Nj 1040nr . Nj 1040nr . Nj 1040nr you pay taxes that the seller owed on the home up to the date of sale the seller does not reimburse you are added to the basis of your home. Nj 1040nr the seller reimburses you do not affect the basis of your home. Nj 1040nr the seller pays taxes for you (taxes owed beginning on the date of sale) you do not reimburse the seller are subtracted from the basis of your home. Nj 1040nr you reimburse the seller do not affect the basis of your home. Nj 1040nr Construction. Nj 1040nr   If you contracted to have your house built on land you own, your basis is: The cost of the land, plus The amount it cost you to complete the house, including: The cost of labor and materials, Any amounts paid to a contractor, Any architect's fees, Building permit charges, Utility meter and connection charges, and Legal fees directly connected with building the house. Nj 1040nr   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. Nj 1040nr It also includes certain settlement or closing costs. Nj 1040nr You may have to reduce your basis by points the seller paid for you. Nj 1040nr For more information, see Seller-paid points and Settlement fees or closing costs , earlier. Nj 1040nr Built by you. Nj 1040nr   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Nj 1040nr Do not include in the cost of the house: The value of your own labor, or The value of any other labor you did not pay for. Nj 1040nr Temporary housing. Nj 1040nr   If a builder gave you temporary housing while your home was being finished, you must reduce your basis by the part of the contract price that was for the temporary housing. Nj 1040nr To figure the amount of the reduction, multiply the contract price by a fraction. Nj 1040nr The numerator is the value of the temporary housing, and the denominator is the sum of the value of the temporary housing plus the value of the new home. Nj 1040nr Cooperative apartment. Nj 1040nr   If you are a tenant-stockholder in a cooperative housing corporation, your basis in the cooperative apartment used as your home is usually the cost of your stock in the corporation. Nj 1040nr This may include your share of a mortgage on the apartment building. Nj 1040nr Condominium. Nj 1040nr   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. Nj 1040nr Basis Other Than Cost You must use a basis other than cost, such as adjusted basis or fair market value, if you received your home as a gift, inheritance, a trade, or from your spouse. Nj 1040nr These situations are discussed in the following pages. Nj 1040nr Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. Nj 1040nr Other special rules may apply in certain situations. Nj 1040nr If you converted the property, or some part of it, to business or rental use, see Property Changed to Business or Rental Use, in Publication 551. Nj 1040nr Home received as gift. Nj 1040nr   Use the following chart to find the basis of a home you received as a gift. Nj 1040nr IF the donor's adjusted basis at the time of the gift was. Nj 1040nr . Nj 1040nr . Nj 1040nr THEN your basis is. Nj 1040nr . Nj 1040nr . Nj 1040nr more than the fair market value of the home at that time the same as the donor's adjusted basis at the time of the gift. Nj 1040nr   Exception: If using the donor's adjusted basis results in a loss when you sell the home, you must use the fair market value of the home at the time of the gift as your basis. Nj 1040nr If using the fair market value results in a gain, you have neither gain nor loss. Nj 1040nr equal to or less than the fair market value at that time, and you received the gift before 1977 the smaller of the: • donor's adjusted basis, plus  any federal gift tax paid on  the gift, or • the home's fair market value  at the time of the gift. Nj 1040nr equal to or less than the fair market value at that time, and you received the gift after 1976 the same as the donor's adjusted basis, plus the part of any federal gift tax paid that is due to the net increase in value of the home (explained next). Nj 1040nr Fair market value. Nj 1040nr   The fair market value of property at the time of the gift is the value of the property as appraised for purposes of the federal gift tax. Nj 1040nr If the gift was not subject to the federal gift tax, the fair market value is the value as appraised for the purposes of a state gift tax. Nj 1040nr Part of federal gift tax due to net increase in value. Nj 1040nr   Figure the part of the federal gift tax paid that is due to the net increase in value of the home by multiplying the total federal gift tax paid by a fraction. Nj 1040nr The numerator of the fraction is the net increase in the value of the home, and the denominator is the value of the home for gift tax purposes after reduction by any annual exclusion and marital or charitable deduction that applies to the gift. Nj 1040nr The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. Nj 1040nr Home acquired from a decedent who died before or after 2010. Nj 1040nr   If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent's death (or the later alternate valuation date chosen by the personal representative of the estate). Nj 1040nr If an estate tax return was filed or required to be filed, the value of the property listed on the estate tax return is your basis. Nj 1040nr If a federal estate tax return did not have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes. Nj 1040nr Surviving spouse. Nj 1040nr   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. Nj 1040nr The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). Nj 1040nr The basis in your interest will remain the same. Nj 1040nr Your new basis in the home is the total of these two amounts. Nj 1040nr   If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home. Nj 1040nr Example. Nj 1040nr Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse's death, and the fair market value on that date was $100,000. Nj 1040nr Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value). Nj 1040nr Community property. Nj 1040nr   In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. Nj 1040nr When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. Nj 1040nr For this to apply, at least half the value of the community property interest must be includible in the decedent's gross estate, whether or not the estate must file a return. Nj 1040nr   For more information about community property, see Publication 555, Community Property. Nj 1040nr    If you are selling a home in which you acquired an interest from a decedent who died in 2010, see Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, to determine your basis. Nj 1040nr Home received as trade. Nj 1040nr   If you acquired your home as a trade for other property, in most cases, the basis of your home is the fair market value (at the time of the trade) of the property you gave up. Nj 1040nr If you traded one home for another, you have made a sale and purchase. Nj 1040nr In that case, you may have a gain. Nj 1040nr See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. Nj 1040nr Home received from spouse. Nj 1040nr   If you received your home from your spouse or from your former spouse incident to your divorce, your basis in the home depends on the date of the transfer. Nj 1040nr Transfers after July 18, 1984. Nj 1040nr   If you received the home after July 18, 1984, there was no gain or loss on the transfer. Nj 1040nr In most cases, your basis in this home is the same as your spouse's (or former spouse's) adjusted basis just before you received it. Nj 1040nr This rule applies even if you received the home in exchange for cash, the release of marital rights, the assumption of liabilities, or other considerations. Nj 1040nr   If you owned a home jointly with your spouse and your spouse transferred his or her interest in the home to you, in most cases, your basis in the half interest received from your spouse is the same as your spouse's adjusted basis just before the transfer. Nj 1040nr This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. Nj 1040nr Your basis in the half interest you already owned does not change. Nj 1040nr Your new basis in the home is the total of these two amounts. Nj 1040nr Transfers before July 19, 1984. Nj 1040nr   If you received your home before July 19, 1984, in exchange for your release of marital rights, in most cases, your basis in the home is generally its fair market value at the time you received it. Nj 1040nr More information. Nj 1040nr   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. Nj 1040nr Involuntary conversion. Nj 1040nr   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. Nj 1040nr If you acquired a replacement home with these proceeds, the basis is its cost decreased by any gain not recognized on the conversion under the rules explained in: Publication 547, in the case of a home that was destroyed, or Chapter 1 of Publication 544, in the case of a home that was condemned. Nj 1040nr Example. Nj 1040nr A fire destroyed your home that you owned and used for only 6 months. Nj 1040nr The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. Nj 1040nr Your gain is $50,000 ($130,000 − $80,000). Nj 1040nr You bought a replacement home for $100,000. Nj 1040nr The part of your gain that is taxable is $30,000 ($130,000 − $100,000), the unspent part of the payment from the insurance company. Nj 1040nr The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. Nj 1040nr The basis of the new home is figured as follows. Nj 1040nr Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. Nj 1040nr   For more information about basis, see Publication 551. Nj 1040nr Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Nj 1040nr To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. Nj 1040nr Filled-in examples of that worksheet are included in Comprehensive Examples , later. Nj 1040nr Recordkeeping. Nj 1040nr You should keep records to prove your home's adjusted basis. Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr Keep records proving the basis of both homes as long as they are needed for tax purposes. Nj 1040nr The records you should keep include: Proof of the home's purchase price and purchase expenses; Receipts and other records for all improvements, additions, and other items that affect the home's adjusted basis; Any worksheets or other computations you used to figure the adjusted basis of the home you sold, the gain or loss on the sale, the exclusion, and the taxable gain; Any Form 982 you filed to exclude any discharge of qualified principal residence indebtedness; Any Form 2119, Sale of Your Home, you filed to postpone gain from the sale of a previous home before May 7, 1997; and Any worksheets you used to prepare Form 2119, such as the Adjusted Basis of Home Sold Worksheet or the Capital Improvements Worksheet from the Form 2119 instructions, or other source of computations. Nj 1040nr Increases to Basis These include the following. Nj 1040nr Additions and other improvements that have a useful life of more than 1 year. Nj 1040nr Special assessments for local improvements. Nj 1040nr Amounts you spent after a casualty to restore damaged property. Nj 1040nr Improvements. Nj 1040nr   These add to the value of your home, prolong its useful life, or adapt it to new uses. Nj 1040nr You add the cost of additions and other improvements to the basis of your property. Nj 1040nr   The following chart lists some other examples of improvements. Nj 1040nr Examples of Improvements That Increase Basis Additions Bedroom Bathroom Deck Garage Porch Patio Heating & Air Conditioning Heating system Central air conditioning Furnace Duct work Central humidifier Filtration system Lawn & Grounds Landscaping Driveway Walkway Fence  Retaining wall Sprinkler system Swimming pool  Miscellaneous Storm windows, doors New roof Central vacuum Wiring upgrades Satellite dish Security system  Plumbing Septic system Water heater Soft water system Filtration system  Interior Improvements Built-in appliances  Kitchen modernization  Flooring Wall-to-wall carpeting  Insulation Attic Walls Floors Pipes and duct work Improvements no longer part of home. Nj 1040nr   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Nj 1040nr Example. Nj 1040nr You put wall-to-wall carpeting in your home 15 years ago. Nj 1040nr Later, you replaced that carpeting with new wall-to-wall carpeting. Nj 1040nr The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Nj 1040nr Repairs. Nj 1040nr   These maintain your home in good condition but do not add to its value or prolong its life. Nj 1040nr You do not add their cost to the basis of your property. Nj 1040nr Examples. Nj 1040nr Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Nj 1040nr Exception. Nj 1040nr   The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. Nj 1040nr For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition. Nj 1040nr Decreases to Basis These include the following. Nj 1040nr Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). Nj 1040nr For details, see Publication 4681. Nj 1040nr Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Nj 1040nr For details, see Publication 4681. Nj 1040nr Gain you postponed from the sale of a previous home before May 7, 1997. Nj 1040nr Deductible casualty losses. Nj 1040nr Insurance payments you received or expect to receive for casualty losses. Nj 1040nr Payments you received for granting an easement or right-of-way. Nj 1040nr Depreciation allowed or allowable if you used your home for business or rental purposes. Nj 1040nr Energy-related credits allowed for expenditures made on the residence. Nj 1040nr (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Nj 1040nr ) Adoption credit you claimed for improvements added to the basis of your home. Nj 1040nr Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. Nj 1040nr General sales taxes claimed as an itemized deduction on Schedule A (Form 1040) that were imposed on the purchase of personal property, such as a houseboat used as your home or a mobile home. Nj 1040nr Discharges of qualified principal residence indebtedness. Nj 1040nr   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Nj 1040nr This exclusion applies to discharges made after 2006 and before 2014. Nj 1040nr If you choose to exclude this income, you must reduce (but not below zero) the basis of your principal residence by the amount excluded from gross income. Nj 1040nr   File Form 982 with your tax return. Nj 1040nr See the form's instructions for detailed information. Nj 1040nr    A decrease in basis due to a discharge of qualified principal residence indebtedness that is excluded from income occurs only if you retain ownership of the principal residence after a discharge. Nj 1040nr In most cases, this would occur in a refinancing or a restructuring of the mortgage. Nj 1040nr Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Nj 1040nr 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. Nj 1040nr To qualify, you must meet the ownership and use tests described later. Nj 1040nr 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. Nj 1040nr This choice can be made (or revoked) at any time before the expiration of a 3-year period beginning on the due date of your return (not including extensions) for the year of the sale. Nj 1040nr You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. Nj 1040nr If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Nj 1040nr See Publication 505, Tax Withholding and Estimated Tax. Nj 1040nr 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. Nj 1040nr You meet the ownership test. Nj 1040nr You meet the use test. Nj 1040nr During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Nj 1040nr For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. Nj 1040nr If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed. Nj 1040nr 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 . Nj 1040nr Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Nj 1040nr 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). Nj 1040nr Exception. Nj 1040nr   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. Nj 1040nr However, the maximum amount you may be able to exclude will be reduced. Nj 1040nr See Reduced Maximum Exclusion , later. Nj 1040nr Example 1—home owned and occupied for at least 2 years. Nj 1040nr Mya bought and moved into her main home in September 2011. Nj 1040nr She sold the home at a gain in October 2013. Nj 1040nr 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. Nj 1040nr She meets the ownership and use tests. Nj 1040nr Example 2—ownership test met but use test not met. Nj 1040nr Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Nj 1040nr He later sold the home for a gain in June 2013. Nj 1040nr He owned the home during the entire 5-year period ending on the date of sale. Nj 1040nr He meets the ownership test but not the use test. Nj 1040nr He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr Example. Nj 1040nr Naomi bought and moved into a house in July 2009. Nj 1040nr She lived there for 13 months and then moved in with a friend. Nj 1040nr She later moved back into her house and lived there for 12 months until she sold it in August 2013. Nj 1040nr Naomi meets the ownership and use tests because, during the 5-year period ending on the date of sale, she owned the house for more than 2 years and lived in it for a total of 25 (13 + 12) months. Nj 1040nr Temporary absence. Nj 1040nr   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. Nj 1040nr The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Nj 1040nr Example 1. Nj 1040nr David Johnson, who is single, bought and moved into his home on February 1, 2011. Nj 1040nr Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Nj 1040nr David sold the house on March 1, 2013. Nj 1040nr Although the total time David lived in his home is less than 2 years (21 months), he meets the use requirement and may exclude gain. Nj 1040nr 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. Nj 1040nr Example 2. Nj 1040nr Professor Paul Beard, who is single, bought and moved into a house in December 2010, went abroad for a 1-year sabbatical leave in January 2012, returned to the house in January 2013, and sold it at a gain in February 2013. Nj 1040nr Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Nj 1040nr He cannot exclude any part of his gain because he did not use the residence for the required 2 years. Nj 1040nr Ownership and use tests met at different times. Nj 1040nr   You can meet the ownership and use tests during different 2-year periods. Nj 1040nr However, you must meet both tests during the 5-year period ending on the date of the sale. Nj 1040nr Example. Nj 1040nr Beginning in 2002, Helen Jones lived in a rented apartment. Nj 1040nr The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Nj 1040nr In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Nj 1040nr On July 12, 2013, while still living in her daughter's home, she sold her condominium. Nj 1040nr 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. Nj 1040nr She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Nj 1040nr She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Nj 1040nr 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. Nj 1040nr Cooperative apartment. Nj 1040nr   If you sold stock as a tenant-shareholder in a cooperative housing corporation, the ownership and use tests are met if, during the 5-year period ending on the date of sale, you: Owned the stock for at least 2 years, and Lived in the house or apartment that the stock entitled you to occupy as your main home for at least 2 years. Nj 1040nr Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Nj 1040nr Exception for individuals with a disability. Nj 1040nr   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. Nj 1040nr 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. Nj 1040nr   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. Nj 1040nr Previous home destroyed or condemned. Nj 1040nr   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. Nj 1040nr This rule applies if any part of the basis of the home you sold depended on the basis of the destroyed or condemned home (see Involuntary Conversions in Publication 551). Nj 1040nr 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. Nj 1040nr Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Nj 1040nr   You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty (defined later) as a member of the uniformed services or Foreign Service of the United States, or as an employee of the intelligence community. Nj 1040nr You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve outside the United States either as an employee of the Peace Corps on qualified official extended duty (defined later) or as an enrolled volunteer or volunteer leader of the Peace Corps. Nj 1040nr 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. Nj 1040nr   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. Nj 1040nr Example. Nj 1040nr John bought and moved into a home in 2005. Nj 1040nr He lived in it as his main home for 2½ years. Nj 1040nr For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Nj 1040nr He then sold the home at a gain in 2013. Nj 1040nr To meet the use test, John chooses to suspend the 5-year test period for the 6 years he was on qualified official extended duty. Nj 1040nr This means he can disregard those 6 years. Nj 1040nr Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. Nj 1040nr He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Nj 1040nr Period of suspension. Nj 1040nr   The period of suspension cannot last more than 10 years. Nj 1040nr Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. Nj 1040nr You cannot suspend the 5-year period for more than one property at a time. Nj 1040nr You can revoke your choice to suspend the 5-year period at any time. Nj 1040nr Example. Nj 1040nr Mary bought a home on April 1, 1997. Nj 1040nr She used it as her main home until August 31, 2000. Nj 1040nr On September 1, 2000, she went on qualified official extended duty with the Navy. Nj 1040nr She did not live in the house again before selling it on July 31, 2013. Nj 1040nr Mary chooses to use the entire 10-year suspension period. Nj 1040nr Therefore, the suspension period would extend back from July 31, 2013, to August 1, 2003, and the 5-year test period would extend back to August 1, 1998. Nj 1040nr During that period, Mary owned the house all 5 years and lived in it as her main home from August 1, 1998, until August 31, 2000, a period of more than 24 months. Nj 1040nr She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. Nj 1040nr Uniformed services. Nj 1040nr   The uniformed services are: The Armed Forces (the Army, Navy, Air Force, Marine Corps, and Coast Guard), The commissioned corps of the National Oceanic and Atmospheric Administration, and The commissioned corps of the Public Health Service. Nj 1040nr Foreign Service member. Nj 1040nr   For purposes of the choice to suspend the 5-year test period for ownership and use, you are a member of the Foreign Service if you are any of the following. Nj 1040nr A Chief of mission. Nj 1040nr An Ambassador at large. Nj 1040nr A member of the Senior Foreign Service. Nj 1040nr A Foreign Service officer. Nj 1040nr Part of the Foreign Service personnel. Nj 1040nr Employee of the intelligence community. Nj 1040nr   For purposes of the choice to suspend the 5-year test period for ownership and use, you are an employee of the intelligence community if you are an employee of any of the following. Nj 1040nr The Office of the Director of National Intelligence. Nj 1040nr The Central Intelligence Agency. Nj 1040nr The National Security Agency. Nj 1040nr The Defense Intelligence Agency. Nj 1040nr The National Geospatial-Intelligence Agency. Nj 1040nr The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. Nj 1040nr Any of the intelligence elements of the Army, the Navy, the Air Force, the Marine Corps, the Federal Bureau of Investigation, the Department of Treasury, the Department of Energy, and the Coast Guard. Nj 1040nr The Bureau of Intelligence and Research of the Department of State. Nj 1040nr Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. Nj 1040nr Qualified official extended duty. Nj 1040nr   You are on qualified official extended duty if you are on extended duty while: Serving at a duty station at least 50 miles from your main home, or Living in Government quarters under Government orders. Nj 1040nr   You are on extended duty when you are called or ordered to active duty for a period of more than 90 days or for an indefinite period. Nj 1040nr 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. Nj 1040nr (But see Special rules for joint returns, next. Nj 1040nr ) Special rules for joint returns. Nj 1040nr   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Nj 1040nr You are married and file a joint return for the year. Nj 1040nr Either you or your spouse meets the ownership test. Nj 1040nr Both you and your spouse meet the use test. Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Nj 1040nr Example 1—one spouse sells a home. Nj 1040nr Emily sells her home in June 2013 for a gain of $300,000. Nj 1040nr She marries Jamie later in the year. Nj 1040nr She meets the ownership and use tests, but Jamie does not. Nj 1040nr Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Nj 1040nr The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Nj 1040nr Example 2—each spouse sells a home. Nj 1040nr 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. Nj 1040nr He meets the ownership and use tests on his home, but Emily does not. Nj 1040nr Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Nj 1040nr However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Nj 1040nr Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Nj 1040nr 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. Nj 1040nr Sale of main home by surviving spouse. Nj 1040nr   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. Nj 1040nr   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. Nj 1040nr The sale or exchange took place after 2008. Nj 1040nr The sale or exchange took place no more than 2 years after the date of death of your spouse. Nj 1040nr You have not remarried. Nj 1040nr You and your spouse met the use test at the time of your spouse's death. Nj 1040nr You or your spouse met the ownership test at the time of your spouse's death. Nj 1040nr Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. Nj 1040nr The ownership and use tests were described earlier. Nj 1040nr Example. Nj 1040nr Harry owned and used a house as his main home since 2009. Nj 1040nr Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. Nj 1040nr Harry died on August 15, 2013, and Wilma inherited the property. Nj 1040nr Wilma sold the property on September 1, 2013, at which time she had not remarried. Nj 1040nr 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. Nj 1040nr Home transferred from spouse. Nj 1040nr   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. Nj 1040nr Use of home after divorce. Nj 1040nr   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. Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Nj 1040nr A change in place of employment. Nj 1040nr Health. Nj 1040nr Unforeseen circumstances. Nj 1040nr Qualified individual. Nj 1040nr   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. Nj 1040nr You. Nj 1040nr Your spouse. Nj 1040nr A co-owner of the home. Nj 1040nr A person whose main home is the same as yours. Nj 1040nr Primary reason for sale. Nj 1040nr   One of the three reasons above will be considered to be the primary reason you sold your home if either (1) or (2) is true. Nj 1040nr You qualify under a “safe harbor. Nj 1040nr ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. Nj 1040nr Safe harbors corresponding to the reasons listed above are described later. Nj 1040nr A safe harbor does not apply, but you can establish, based on facts and circumstances, that the primary reason for the sale is a change in place of employment, health, or unforeseen circumstances. Nj 1040nr  Factors that may be relevant in determining your primary reason for sale include whether: Your sale and the circumstances causing it were close in time, The circumstances causing your sale occurred during the time you owned and used the property as your main home, The circumstances causing your sale were not reasonably foreseeable when you began using the property as your main home, Your financial ability to maintain the property became materially impaired, The suitability of the property as your main home materially changed, and During the time you owned the property, you used it as your home. Nj 1040nr Change in Place of Employment You may qualify for a reduced exclusion if the primary reason for the sale of your main home is a change in the location of employment of a qualified individual. Nj 1040nr Employment. Nj 1040nr   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. Nj 1040nr It also includes the start or continuation of self-employment. Nj 1040nr Distance safe harbor. Nj 1040nr   A change in place of employment is considered to be the reason you sold your home if: The change occurred during the period you owned and used the property as your main home, and The new place of employment is at least 50 miles farther from the home you sold than was the former place of employment (or, if there was no former place of employment, the distance between your new place of employment and the home sold is at least 50 miles). Nj 1040nr Example. Nj 1040nr Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. Nj 1040nr He got a job in North Carolina and sold his townhouse in 2013. Nj 1040nr Because the distance between Justin's new place of employment and the home he sold is at least 50 miles, the sale satisfies the conditions of the distance safe harbor. Nj 1040nr Justin's sale of his home is considered to be because of a change in place of employment, and he is entitled to claim a reduced maximum exclusion of gain from the sale. Nj 1040nr Health The sale of your main home is because of health if your primary reason for the sale is: To obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury of a qualified individual, or To obtain or provide medical or personal care for a qualified individual suffering from a disease, illness, or injury. Nj 1040nr The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. Nj 1040nr For purposes of this reason, a qualified individual includes, in addition to the individuals listed earlier under Qualified individual , any of the following family members of these individuals. Nj 1040nr Parent, grandparent, stepmother, stepfather. Nj 1040nr Child, grandchild, stepchild, adopted child, eligible foster child. Nj 1040nr Brother, sister, stepbrother, stepsister, half-brother, half-sister. Nj 1040nr Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Nj 1040nr Uncle, aunt, nephew, niece, or cousin. Nj 1040nr Example. Nj 1040nr In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. Nj 1040nr Lauren's father has a chronic disease and is unable to care for himself. Nj 1040nr In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. Nj 1040nr Because the primary reason for the sale of their home was to provide care for Lauren's father, Chase and Lauren are entitled to a reduced maximum exclusion. Nj 1040nr Doctor's recommendation safe harbor. Nj 1040nr   Health is considered to be the reason you sold your home if, for one or more of the reasons listed at the beginning of this discussion, a doctor recommends a change of residence. Nj 1040nr Unforeseen Circumstances The sale of your main home is because of an unforeseen circumstance if your primary reason for the sale is the occurrence of an event that you could not reasonably have anticipated before buying and occupying that home. Nj 1040nr You are not considered to have an unforeseen circumstance if the primary reason you sold your home was that you preferred to get a different home or because your finances improved. Nj 1040nr Specific event safe harbors. Nj 1040nr   Unforeseen circumstances are considered to be the reason for selling your home if any of the following events occurred while you owned and used the property as your main home. Nj 1040nr An involuntary conversion of your home, such as when your home is destroyed or condemned. Nj 1040nr Natural or man-made disasters or acts of war or terrorism resulting in a casualty to your home, whether or not your loss is deductible. Nj 1040nr In the case of qualified individuals (listed earlier under Qualified individual ): Death, Unemployment (if the individual is eligible for unemployment compensation), A change in employment or self-employment status that results in the individual's inability to pay reasonable basic living expenses (listed under Reasonable basic living expenses , later) for his or her household, Divorce or legal separation under a decree of divorce or separate maintenance, or Multiple births resulting from the same pregnancy. Nj 1040nr An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. Nj 1040nr For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. Nj 1040nr Reasonable basic living expenses. Nj 1040nr   Reasonable basic living expenses for your household include the following. Nj 1040nr Amounts spent for food. Nj 1040nr Amounts spent for clothing. Nj 1040nr Housing and related expenses. Nj 1040nr Medical expenses. Nj 1040nr Transportation expenses. Nj 1040nr Tax payments. Nj 1040nr Court-ordered payments. Nj 1040nr Expenses reasonably necessary to produce income. Nj 1040nr   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. Nj 1040nr Nonqualified Use Gain from the sale or exchange of the main home is not excludable from income if it is allocable to periods of nonqualified use. Nj 1040nr Nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse) used the property as a main home, with certain exceptions (see next). Nj 1040nr Exceptions. Nj 1040nr   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. Nj 1040nr Calculation. Nj 1040nr   To figure the portion of the gain allocated to the period of nonqualified use, multiply the gain (net of any depreciation allowed or allowable on the property for periods after May 6, 1997) by the following fraction:   Total nonqualified use during the period of ownership after 2008     Total period of ownership     This calculation can be found in Worksheet 2, line 10, later in this publication. Nj 1040nr   For examples of this calculation, see Business Use or Rental of Home , next. Nj 1040nr Business Use or Rental of Home You may be able to exclude gain from the sale of a home you have used for business or to produce rental income if you meet the ownership and use tests. Nj 1040nr Example 1. Nj 1040nr On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Nj 1040nr 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. Nj 1040nr The house was rented from June 1, 2009, to March 31, 2011. Nj 1040nr Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Nj 1040nr 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. Nj 1040nr 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. Nj 1040nr Five-Year Period Used as Home Used as Rental 1/31/08 – 5/31/09 16 months   6/01/09 – 3/31/11   22 months 4/01/11 – 1/31/13 22 months     38 months 22 months       During the period Amy owned the house (2,080 days), her period of nonqualified use was 668 days. Nj 1040nr Because the gain attributable to periods of nonqualified use is $60,990, Amy can exclude $129,010 of her gain, as shown on Worksheet 2. Nj 1040nr Example 2. Nj 1040nr William owned and used a house as his main home from 2007 through 2010. Nj 1040nr On January 1, 2011, he moved to another state. Nj 1040nr He rented his house from that date until April 30, 2013, when he sold it. Nj 1040nr 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. Nj 1040nr Because it was rental property at the time of the sale, he must report the sale on Form 4797. Nj 1040nr 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. Nj 1040nr Because he met the ownership and use tests, he can exclude gain up to $250,000. Nj 1040nr 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. Nj 1040nr Depreciation after May 6, 1997. Nj 1040nr   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. Nj 1040nr 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. Nj 1040nr Unrecaptured section 1250 gain. Nj 1040nr   This is the part of any long-term capital gain from the sale of your home that is due to depreciation and cannot be excluded. Nj 1040nr To figure the amount of unrecaptured section 1250 gain to be reported on Schedule D (Form 1040), you must also take into account certain gains or losses from the sale of property other than your home. Nj 1040nr Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. Nj 1040nr Worksheet 2. Nj 1040nr Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. Nj 1040nr Gain or (Loss) on Sale       1. Nj 1040nr   Selling price of home 1. Nj 1040nr     2. Nj 1040nr   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. Nj 1040nr     3. Nj 1040nr   Subtract line 2 from line 1. Nj 1040nr This is the amount realized 3. Nj 1040nr     4. Nj 1040nr   Adjusted basis of home sold (from Worksheet 1, line 13) 4. Nj 1040nr     5. Nj 1040nr   Gain or (loss) on the sale. Nj 1040nr Subtract line 4 from line 3. Nj 1040nr If this is a loss, stop here 5. Nj 1040nr 200,000   Part 2. Nj 1040nr Exclusion and Taxable Gain       6. Nj 1040nr   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. Nj 1040nr If none, enter -0- 6. Nj 1040nr 10,000   7. Nj 1040nr   Subtract line 6 from line 5. Nj 1040nr If the result is less than zero, enter -0- 7. Nj 1040nr 190,000   8. Nj 1040nr   Aggregate number of days of nonqualified use after 2008. Nj 1040nr If none, enter -0-. Nj 1040nr  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. Nj 1040nr 668   9. Nj 1040nr   Number of days taxpayer owned the property 9. Nj 1040nr 2,080   10. Nj 1040nr   Divide the amount on line 8 by the amount on line 9. Nj 1040nr Enter the result as a decimal (rounded to at least 3 places). Nj 1040nr But do not enter an amount greater than 1. Nj 1040nr 00 10. Nj 1040nr 0. Nj 1040nr 321   11. Nj 1040nr   Gain allocated to nonqualified use. Nj 1040nr (Line 7 multiplied by line 10) 11. Nj 1040nr 60,990   12. Nj 1040nr   Gain eligible for exclusion. Nj 1040nr Subtract line 11 from line 7 12. Nj 1040nr 129,010   13. Nj 1040nr   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). Nj 1040nr  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. Nj 1040nr If you do  not qualify to exclude gain, enter -0- 13. Nj 1040nr 250,000   14. Nj 1040nr   Exclusion. Nj 1040nr Enter the smaller of line 12 or line 13 14. Nj 1040nr 129,010   15. Nj 1040nr   Taxable gain. Nj 1040nr Subtract line 14 from line 5. Nj 1040nr Report your taxable gain as described under Reporting the Sale . Nj 1040nr If the amount on line 6 is more than zero, complete line 16 15. Nj 1040nr 70,990   16. Nj 1040nr   Enter the smaller of line 6 or line 15. Nj 1040nr Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. Nj 1040nr 10,000 Property Used Partly for Business or Rental If you use property partly as a home and partly for business or to produce rental income, the treatment of any gain on the sale depends partly on whether the business or rental part of the property is part of your home or separate from it. Nj 1040nr Part of Home Used for Business or Rental If the part of your property used for business or to produce rental income is within your home, such as a room used as a home office for a business, you do not need to allocate gain on the sale of the property between the business part of the property and the part used as a home. Nj 1040nr In addition, you do not need to report the sale of the business or rental part on Form 4797. Nj 1040nr This is true whether or not you were entitled to claim any depreciation. Nj 1040nr However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. Nj 1040nr See Depreciation after May 6, 1997, earlier. Nj 1040nr Example 1. Nj 1040nr Ray sold his main home in 2013 at a $30,000 gain. Nj 1040nr He has no gains or losses from the sale of property other than the gain from the sale of his home. Nj 1040nr He meets the ownership and use tests to exclude the gain from his income. Nj 1040nr However, he used part of the home as a business office in 2012 and claimed $500 depreciation. Nj 1040nr Because the business office was part of his home (not separate from it), he does not have to allocate the gain on the sale between the business part of the property and the part used as a home. Nj 1040nr In addition, he does not have to report any part of the gain on Form 4797. Nj 1040nr Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. Nj 1040nr He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). Nj 1040nr Example 2. Nj 1040nr The facts are the same as in Example 1 except that Ray was not entitled to claim depreciation for the business use of his home. Nj 1040nr Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. Nj 1040nr Separate Part of Property Used for Business or Rental You may have used part of your property as your home and a separate part of it for business or to produce rental income. Nj 1040nr Examples are: A working farm on which your house was located, A duplex in w