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Where To File State Taxes

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Where to file state taxes Publication 523 - Main Content Table of Contents Main HomeVacant land. Where to file state taxes Factors used to determine main home. Where to file state taxes 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. Where to file state taxes Property Used Partly for Business or Rental Reporting the SaleSeller-financed mortgage. Where to file state taxes Individual taxpayer identification number (ITIN). Where to file state taxes More information. Where to file state taxes Comprehensive Examples Special SituationsException for sales to related persons. Where to file state taxes Deducting Taxes in the Year of SaleForm 1099-S. Where to file state taxes More information. Where to file state taxes Recapturing (Paying Back) a Federal Mortgage Subsidy Recapture of First-Time Homebuyer CreditExample. Where to file state taxes Worksheets How To Get Tax HelpLow Income Taxpayer Clinics Main Home This section explains the term “main home. Where to file state taxes ” 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. Where to file state taxes 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. Where to file state taxes Land. Where to file state taxes   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. Where to file state taxes Example. Where to file state taxes You buy a piece of land and move your main home to it. Where to file state taxes Then, you sell the land on which your main home was located. Where to file state taxes This sale is not considered a sale of your main home, and you cannot exclude any gain on the sale of the land. Where to file state taxes Vacant land. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes See Excluding the Gain , later. Where to file state taxes The destruction of your home is treated as a sale of your home. Where to file state taxes 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. Where to file state taxes For information, see Publication 547. Where to file state taxes More than one home. Where to file state taxes   If you have more than one home, you can exclude gain only from the sale of your main home. Where to file state taxes You must include in income the gain from the sale of any other home. Where to file state taxes 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. Where to file state taxes Example 1. Where to file state taxes You own two homes, one in New York and one in Florida. Where to file state taxes 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. Where to file state taxes In the absence of facts and circumstances indicating otherwise, the New York home is your main home. Where to file state taxes You would be eligible to exclude the gain from the sale of the New York home but not of the Florida home in 2013. Where to file state taxes Example 2. Where to file state taxes You own a house, but you live in another house that you rent. Where to file state taxes The rented house is your main home. Where to file state taxes Example 3. Where to file state taxes You own two homes, one in Virginia and one in New Hampshire. Where to file state taxes In 2009 and 2010, you lived in the Virginia home. Where to file state taxes In 2011 and 2012, you lived in the New Hampshire home. Where to file state taxes In 2013, you lived again in the Virginia home. Where to file state taxes Your main home in 2009, 2010, and 2013 is the Virginia home. Where to file state taxes Your main home in 2011 and 2012 is the New Hampshire home. Where to file state taxes You would be eligible to exclude gain from the sale of either home (but not both) in 2013. Where to file state taxes Factors used to determine main home. Where to file state taxes   In addition to the amount of time you live in each home, other factors are relevant in determining which home is your main home. Where to file state taxes Those factors include the following. Where to file state taxes Your place of employment. Where to file state taxes The location of your family members' main home. Where to file state taxes Your mailing address for bills and correspondence. Where to file state taxes The address listed on your: Federal and state tax returns, Driver's license, Car registration, and Voter registration card. Where to file state taxes The location of the banks you use. Where to file state taxes The location of recreational clubs and religious organizations of which you are a member. Where to file state taxes Property used partly as your main home. Where to file state taxes   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. Where to file state taxes For details, see Business Use or Rental of Home , later. Where to file state taxes 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. Where to file state taxes Subtract the adjusted basis from the amount realized to get your gain or loss. Where to file state taxes     Selling price     − Selling expenses       Amount realized     − Adjusted basis       Gain or loss   Gain. Where to file state taxes   Gain is the excess of the amount realized over the adjusted basis of the property. Where to file state taxes Loss. Where to file state taxes   Loss is the excess of the adjusted basis over the amount realized for the property. Where to file state taxes Selling Price The selling price is the total amount you receive for your home. Where to file state taxes 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. Where to file state taxes Personal property. Where to file state taxes   The selling price of your home does not include amounts you received for personal property sold with your home. Where to file state taxes Personal property is property that is not a permanent part of the home. Where to file state taxes Examples are furniture, draperies, rugs, a washer and dryer, and lawn equipment. Where to file state taxes Separately stated amounts you received for these items should not be shown on Form 1099-S (discussed later). Where to file state taxes Any gains from sales of personal property must be included in your income, but not as part of the sale of your home. Where to file state taxes Payment by employer. Where to file state taxes   You may have to sell your home because of a job transfer. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Option to buy. Where to file state taxes   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. Where to file state taxes If the option is not exercised, you must report the amount as ordinary income in the year the option expires. Where to file state taxes Report this amount on Form 1040, line 21, or on Form 1040NR, line 21. Where to file state taxes Form 1099-S. Where to file state taxes   If you received Form 1099-S, box 2 (gross proceeds) should show the total amount you received for your home. Where to file state taxes   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. Where to file state taxes Instead, box 4 will be checked to indicate your receipt or expected receipt of these items. Where to file state taxes Amount Realized The amount realized is the selling price minus selling expenses. Where to file state taxes Selling expenses. Where to file state taxes   Selling expenses include: Commissions, Advertising fees, Legal fees, and Loan charges paid by the seller, such as loan placement fees or “points. Where to file state taxes ” Adjusted Basis While you owned your home, you may have made adjustments (increases or decreases) to the basis. Where to file state taxes This adjusted basis must be determined before you can figure gain or loss on the sale of your home. Where to file state taxes For information on how to figure your home's adjusted basis, see Determining Basis , later. Where to file state taxes Amount of Gain or Loss To figure the amount of gain or loss, compare the amount realized to the adjusted basis. Where to file state taxes Gain on sale. Where to file state taxes   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. Where to file state taxes Loss on sale. Where to file state taxes   If the amount realized is less than the adjusted basis, the difference is a loss. Where to file state taxes Generally, a loss on the sale of your main home cannot be deducted. Where to file state taxes Jointly owned home. Where to file state taxes   If you and your spouse sell your jointly owned home and file a joint return, you figure your gain or loss as one taxpayer. Where to file state taxes Separate returns. Where to file state taxes   If you file separate returns, each of you must figure your own gain or loss according to your ownership interest in the home. Where to file state taxes Your ownership interest is generally determined by state law. Where to file state taxes Joint owners not married. Where to file state taxes   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. Where to file state taxes Each of you applies the rules discussed in this publication on an individual basis. Where to file state taxes Dispositions Other Than Sales Some special rules apply to other dispositions of your main home. Where to file state taxes Foreclosure or repossession. Where to file state taxes   If your home was foreclosed on or repossessed, you have a disposition. Where to file state taxes See Publication 4681 to determine if you have ordinary income, gain, or loss. Where to file state taxes More information. Where to file state taxes   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. Where to file state taxes Publication 544 has examples of how to figure gain or loss on a foreclosure or repossession. Where to file state taxes Abandonment. Where to file state taxes   If you abandon your home, see Publication 4681 to determine if you have ordinary income, gain, or loss. Where to file state taxes Trading (exchanging) homes. Where to file state taxes   If you trade your home for another home, treat the trade as a sale and a purchase. Where to file state taxes Example. Where to file state taxes You owned and lived in a home with an adjusted basis of $41,000. Where to file state taxes 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. Where to file state taxes This is treated as a sale of your old home for $50,000 with a gain of $9,000 ($50,000 − $41,000). Where to file state taxes 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). Where to file state taxes Transfer to spouse. Where to file state taxes   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). Where to file state taxes This is true even if you receive cash or other consideration for the home. Where to file state taxes As a result, the rules explained in this publication do not apply. Where to file state taxes   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. Where to file state taxes You have no gain or loss. Where to file state taxes Exception. Where to file state taxes   These transfer rules do not apply if your spouse or former spouse is a nonresident alien. Where to file state taxes In that case, you generally will have a gain or loss. Where to file state taxes More information. Where to file state taxes    See Property Settlements in Publication 504, Divorced or Separated Individuals, for more information. Where to file state taxes Involuntary conversion. Where to file state taxes   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. Where to file state taxes 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 ). Where to file state taxes Determining Basis You need to know your basis in your home to figure any gain or loss when you sell it. Where to file state taxes Your basis in your home is determined by how you got the home. Where to file state taxes Generally, your basis is its cost if you bought it or built it. Where to file state taxes If you got it in some other way (inheritance, gift, etc. Where to file state taxes ), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner. Where to file state taxes While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. Where to file state taxes 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. Where to file state taxes To figure your adjusted basis, you can use Worksheet 1, near the end of this publication. Where to file state taxes Filled-in examples of that worksheet are included in the Comprehensive Examples , later. Where to file state taxes Cost As Basis The cost of property is the amount you paid for it in cash, debt obligations, other property, or services. Where to file state taxes Purchase. Where to file state taxes   If you bought your home, your basis is its cost to you. Where to file state taxes This includes the purchase price and certain settlement or closing costs. Where to file state taxes 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. Where to file state taxes If you build, or contract to build, a new home, your purchase price can include costs of construction, as discussed later. Where to file state taxes Seller-paid points. Where to file state taxes   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. Where to file state taxes    IF you bought your home. Where to file state taxes . Where to file state taxes . Where to file state taxes THEN reduce your home's basis by the seller-paid points. Where to file state taxes . Where to file state taxes . Where to file state taxes after 1990 but before April 4, 1994 only if you deducted them as home mortgage interest in the year paid. Where to file state taxes after April 3, 1994 even if you did not deduct them. Where to file state taxes Settlement fees or closing costs. Where to file state taxes   When you bought your home, you may have paid settlement fees or closing costs in addition to the contract price of the property. Where to file state taxes 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. Where to file state taxes 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). Where to file state taxes   Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance. Where to file state taxes   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. Where to file state taxes   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. Where to file state taxes Real estate taxes. Where to file state taxes   Real estate taxes for the year you bought your home may affect your basis, as shown in the following chart. Where to file state taxes    IF. Where to file state taxes . Where to file state taxes . Where to file state taxes AND. Where to file state taxes . Where to file state taxes . Where to file state taxes THEN the taxes. Where to file state taxes . Where to file state taxes . Where to file state taxes 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. Where to file state taxes the seller reimburses you do not affect the basis of your home. Where to file state taxes 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. Where to file state taxes you reimburse the seller do not affect the basis of your home. Where to file state taxes Construction. Where to file state taxes   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. Where to file state taxes   Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. Where to file state taxes It also includes certain settlement or closing costs. Where to file state taxes You may have to reduce your basis by points the seller paid for you. Where to file state taxes For more information, see Seller-paid points and Settlement fees or closing costs , earlier. Where to file state taxes Built by you. Where to file state taxes   If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Where to file state taxes 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. Where to file state taxes Temporary housing. Where to file state taxes   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. Where to file state taxes To figure the amount of the reduction, multiply the contract price by a fraction. Where to file state taxes 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. Where to file state taxes Cooperative apartment. Where to file state taxes   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. Where to file state taxes This may include your share of a mortgage on the apartment building. Where to file state taxes Condominium. Where to file state taxes   To determine your basis in a condominium apartment used as your home, use the same rules as for any other home. Where to file state taxes 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. Where to file state taxes These situations are discussed in the following pages. Where to file state taxes Also, the instructions for Worksheet 1 (near the end of the publication) address each of these issues. Where to file state taxes Other special rules may apply in certain situations. Where to file state taxes 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. Where to file state taxes Home received as gift. Where to file state taxes   Use the following chart to find the basis of a home you received as a gift. Where to file state taxes IF the donor's adjusted basis at the time of the gift was. Where to file state taxes . Where to file state taxes . Where to file state taxes THEN your basis is. Where to file state taxes . Where to file state taxes . Where to file state taxes 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. Where to file state taxes   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. Where to file state taxes If using the fair market value results in a gain, you have neither gain nor loss. Where to file state taxes 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. Where to file state taxes 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). Where to file state taxes Fair market value. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes Part of federal gift tax due to net increase in value. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes The net increase in the value of the home is its fair market value minus the donor's adjusted basis immediately before the gift. Where to file state taxes Home acquired from a decedent who died before or after 2010. Where to file state taxes   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). Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Surviving spouse. Where to file state taxes   If you are a surviving spouse and you owned your home jointly, your basis in the home will change. Where to file state taxes The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). Where to file state taxes The basis in your interest will remain the same. Where to file state taxes Your new basis in the home is the total of these two amounts. Where to file state taxes   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. Where to file state taxes Example. Where to file state taxes 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. Where to file state taxes 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). Where to file state taxes Community property. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes   For more information about community property, see Publication 555, Community Property. Where to file state taxes    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. Where to file state taxes Home received as trade. Where to file state taxes   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. Where to file state taxes If you traded one home for another, you have made a sale and purchase. Where to file state taxes In that case, you may have a gain. Where to file state taxes See Trading (exchanging) homes under Dispositions Other Than Sales, earlier, for an example of figuring the gain. Where to file state taxes Home received from spouse. Where to file state taxes   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. Where to file state taxes Transfers after July 18, 1984. Where to file state taxes   If you received the home after July 18, 1984, there was no gain or loss on the transfer. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes   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. Where to file state taxes This also applies if your former spouse transferred his or her interest in the home to you incident to your divorce. Where to file state taxes Your basis in the half interest you already owned does not change. Where to file state taxes Your new basis in the home is the total of these two amounts. Where to file state taxes Transfers before July 19, 1984. Where to file state taxes   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. Where to file state taxes More information. Where to file state taxes   For more information on property received from a spouse or former spouse, see Property Settlements in Publication 504. Where to file state taxes Involuntary conversion. Where to file state taxes   If your home is destroyed or condemned, you may receive insurance proceeds or a condemnation award. Where to file state taxes 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. Where to file state taxes Example. Where to file state taxes A fire destroyed your home that you owned and used for only 6 months. Where to file state taxes The home had an adjusted basis of $80,000 and the insurance company paid you $130,000 for the loss. Where to file state taxes Your gain is $50,000 ($130,000 − $80,000). Where to file state taxes You bought a replacement home for $100,000. Where to file state taxes 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. Where to file state taxes The rest of the gain ($20,000) is not taxable, so that amount reduces your basis in the new home. Where to file state taxes The basis of the new home is figured as follows. Where to file state taxes Cost of replacement home $100,000 Minus: Gain not recognized 20,000 Basis of the replacement home $80,000 More information. Where to file state taxes   For more information about basis, see Publication 551. Where to file state taxes Adjusted Basis Adjusted basis is your cost or other basis increased or decreased by certain amounts. Where to file state taxes To figure your adjusted basis, you can use Worksheet 1, found toward the end of this publication. Where to file state taxes Filled-in examples of that worksheet are included in Comprehensive Examples , later. Where to file state taxes Recordkeeping. Where to file state taxes You should keep records to prove your home's adjusted basis. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Keep records proving the basis of both homes as long as they are needed for tax purposes. Where to file state taxes 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. Where to file state taxes Increases to Basis These include the following. Where to file state taxes Additions and other improvements that have a useful life of more than 1 year. Where to file state taxes Special assessments for local improvements. Where to file state taxes Amounts you spent after a casualty to restore damaged property. Where to file state taxes Improvements. Where to file state taxes   These add to the value of your home, prolong its useful life, or adapt it to new uses. Where to file state taxes You add the cost of additions and other improvements to the basis of your property. Where to file state taxes   The following chart lists some other examples of improvements. Where to file state taxes 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. Where to file state taxes   Your home's adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home. Where to file state taxes Example. Where to file state taxes You put wall-to-wall carpeting in your home 15 years ago. Where to file state taxes Later, you replaced that carpeting with new wall-to-wall carpeting. Where to file state taxes The cost of the old carpeting you replaced is no longer part of your home's adjusted basis. Where to file state taxes Repairs. Where to file state taxes   These maintain your home in good condition but do not add to its value or prolong its life. Where to file state taxes You do not add their cost to the basis of your property. Where to file state taxes Examples. Where to file state taxes Repainting your house inside or outside, fixing your gutters or floors, repairing leaks or plastering, and replacing broken window panes are examples of repairs. Where to file state taxes Exception. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes Decreases to Basis These include the following. Where to file state taxes Discharge of qualified principal residence indebtedness that was excluded from income (but not below zero). Where to file state taxes For details, see Publication 4681. Where to file state taxes Some or all of the cancellation of debt income that was excluded due to your bankruptcy or insolvency. Where to file state taxes For details, see Publication 4681. Where to file state taxes Gain you postponed from the sale of a previous home before May 7, 1997. Where to file state taxes Deductible casualty losses. Where to file state taxes Insurance payments you received or expect to receive for casualty losses. Where to file state taxes Payments you received for granting an easement or right-of-way. Where to file state taxes Depreciation allowed or allowable if you used your home for business or rental purposes. Where to file state taxes Energy-related credits allowed for expenditures made on the residence. Where to file state taxes (Reduce the increase in basis otherwise allowable for expenditures on the residence by the amount of credit allowed for those expenditures. Where to file state taxes ) Adoption credit you claimed for improvements added to the basis of your home. Where to file state taxes Nontaxable payments from an adoption assistance program of your employer you used for improvements you added to the basis of your home. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes District of Columbia first-time homebuyer credit allowed on the purchase of a principal residence in the District of Columbia. Where to file state taxes 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. Where to file state taxes Discharges of qualified principal residence indebtedness. Where to file state taxes   You may be able to exclude from gross income a discharge of qualified principal residence indebtedness. Where to file state taxes This exclusion applies to discharges made after 2006 and before 2014. Where to file state taxes 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. Where to file state taxes   File Form 982 with your tax return. Where to file state taxes See the form's instructions for detailed information. Where to file state taxes    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. Where to file state taxes In most cases, this would occur in a refinancing or a restructuring of the mortgage. Where to file state taxes Excluding the Gain You may qualify to exclude from your income all or part of any gain from the sale of your main home. Where to file state taxes 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. Where to file state taxes To qualify, you must meet the ownership and use tests described later. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes You can use Worksheet 2 (near the end of this publication) to figure the amount of your exclusion and your taxable gain, if any. Where to file state taxes If you have any taxable gain from the sale of your home, you may have to increase your withholding or make estimated tax payments. Where to file state taxes See Publication 505, Tax Withholding and Estimated Tax. Where to file state taxes 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. Where to file state taxes You meet the ownership test. Where to file state taxes You meet the use test. Where to file state taxes During the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home. Where to file state taxes For details on gain allocated to periods of nonqualified use, see Nonqualified Use , later. Where to file state taxes 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. Where to file state taxes 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 . Where to file state taxes Ownership and Use Tests To claim the exclusion, you must meet the ownership and use tests. Where to file state taxes 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). Where to file state taxes Exception. Where to file state taxes   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. Where to file state taxes However, the maximum amount you may be able to exclude will be reduced. Where to file state taxes See Reduced Maximum Exclusion , later. Where to file state taxes Example 1—home owned and occupied for at least 2 years. Where to file state taxes Mya bought and moved into her main home in September 2011. Where to file state taxes She sold the home at a gain in October 2013. Where to file state taxes 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. Where to file state taxes She meets the ownership and use tests. Where to file state taxes Example 2—ownership test met but use test not met. Where to file state taxes Ayden bought a home, lived in it for 6 months, moved out, and never occupied the home again. Where to file state taxes He later sold the home for a gain in June 2013. Where to file state taxes He owned the home during the entire 5-year period ending on the date of sale. Where to file state taxes He meets the ownership test but not the use test. Where to file state taxes He cannot exclude any part of his gain on the sale unless he qualified for a reduced maximum exclusion (explained later). Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Example. Where to file state taxes Naomi bought and moved into a house in July 2009. Where to file state taxes She lived there for 13 months and then moved in with a friend. Where to file state taxes She later moved back into her house and lived there for 12 months until she sold it in August 2013. Where to file state taxes 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. Where to file state taxes Temporary absence. Where to file state taxes   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. Where to file state taxes The following examples assume that the reduced maximum exclusion (discussed later) does not apply to the sales. Where to file state taxes Example 1. Where to file state taxes David Johnson, who is single, bought and moved into his home on February 1, 2011. Where to file state taxes Each year during 2011 and 2012, David left his home for a 2-month summer vacation. Where to file state taxes David sold the house on March 1, 2013. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Example 2. Where to file state taxes 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. Where to file state taxes Because his leave was not a short temporary absence, he cannot include the period of leave to meet the 2-year use test. Where to file state taxes He cannot exclude any part of his gain because he did not use the residence for the required 2 years. Where to file state taxes Ownership and use tests met at different times. Where to file state taxes   You can meet the ownership and use tests during different 2-year periods. Where to file state taxes However, you must meet both tests during the 5-year period ending on the date of the sale. Where to file state taxes Example. Where to file state taxes Beginning in 2002, Helen Jones lived in a rented apartment. Where to file state taxes The apartment building was later converted to condominiums, and she bought her same apartment on December 3, 2010. Where to file state taxes In 2011, Helen became ill and on April 14 of that year she moved to her daughter's home. Where to file state taxes On July 12, 2013, while still living in her daughter's home, she sold her condominium. Where to file state taxes 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. Where to file state taxes She owned her condominium from December 3, 2010, to July 12, 2013 (more than 2 years). Where to file state taxes She lived in the property from July 13, 2008 (the beginning of the 5-year period), to April 14, 2011 (more than 2 years). Where to file state taxes 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. Where to file state taxes Cooperative apartment. Where to file state taxes   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. Where to file state taxes Exceptions to Ownership and Use Tests The following sections contain exceptions to the ownership and use tests for certain taxpayers. Where to file state taxes Exception for individuals with a disability. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes   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. Where to file state taxes Previous home destroyed or condemned. Where to file state taxes   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. Where to file state taxes 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). Where to file state taxes 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. Where to file state taxes Members of the uniformed services or Foreign Service, employees of the intelligence community, or employees or volunteers of the Peace Corps. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes   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. Where to file state taxes Example. Where to file state taxes John bought and moved into a home in 2005. Where to file state taxes He lived in it as his main home for 2½ years. Where to file state taxes For the next 6 years, he did not live in it because he was on qualified official extended duty with the Army. Where to file state taxes He then sold the home at a gain in 2013. Where to file state taxes 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. Where to file state taxes This means he can disregard those 6 years. Where to file state taxes Therefore, John's 5-year test period consists of the 5 years before he went on qualified official extended duty. Where to file state taxes He meets the ownership and use tests because he owned and lived in the home for 2½ years during this test period. Where to file state taxes Period of suspension. Where to file state taxes   The period of suspension cannot last more than 10 years. Where to file state taxes Together, the 10-year suspension period and the 5-year test period can be as long as, but no more than, 15 years. Where to file state taxes You cannot suspend the 5-year period for more than one property at a time. Where to file state taxes You can revoke your choice to suspend the 5-year period at any time. Where to file state taxes Example. Where to file state taxes Mary bought a home on April 1, 1997. Where to file state taxes She used it as her main home until August 31, 2000. Where to file state taxes On September 1, 2000, she went on qualified official extended duty with the Navy. Where to file state taxes She did not live in the house again before selling it on July 31, 2013. Where to file state taxes Mary chooses to use the entire 10-year suspension period. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes She meets the ownership and use tests because she owned and lived in the home for at least 2 years during this test period. Where to file state taxes Uniformed services. Where to file state taxes   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. Where to file state taxes Foreign Service member. Where to file state taxes   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. Where to file state taxes A Chief of mission. Where to file state taxes An Ambassador at large. Where to file state taxes A member of the Senior Foreign Service. Where to file state taxes A Foreign Service officer. Where to file state taxes Part of the Foreign Service personnel. Where to file state taxes Employee of the intelligence community. Where to file state taxes   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. Where to file state taxes The Office of the Director of National Intelligence. Where to file state taxes The Central Intelligence Agency. Where to file state taxes The National Security Agency. Where to file state taxes The Defense Intelligence Agency. Where to file state taxes The National Geospatial-Intelligence Agency. Where to file state taxes The National Reconnaissance Office and any other office within the Department of Defense for the collection of specialized national intelligence through reconnaissance programs. Where to file state taxes 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. Where to file state taxes The Bureau of Intelligence and Research of the Department of State. Where to file state taxes Any of the elements of the Department of Homeland Security concerned with the analyses of foreign intelligence information. Where to file state taxes Qualified official extended duty. Where to file state taxes   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. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes (But see Special rules for joint returns, next. Where to file state taxes ) Special rules for joint returns. Where to file state taxes   You can exclude up to $500,000 of the gain on the sale of your main home if all of the following are true. Where to file state taxes You are married and file a joint return for the year. Where to file state taxes Either you or your spouse meets the ownership test. Where to file state taxes Both you and your spouse meet the use test. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes For this purpose, each spouse is treated as owning the property during the period that either spouse owned the property. Where to file state taxes Example 1—one spouse sells a home. Where to file state taxes Emily sells her home in June 2013 for a gain of $300,000. Where to file state taxes She marries Jamie later in the year. Where to file state taxes She meets the ownership and use tests, but Jamie does not. Where to file state taxes Emily can exclude up to $250,000 of gain on a separate or joint return for 2013. Where to file state taxes The $500,000 maximum exclusion for certain joint returns does not apply because Jamie does not meet the use test. Where to file state taxes Example 2—each spouse sells a home. Where to file state taxes 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. Where to file state taxes He meets the ownership and use tests on his home, but Emily does not. Where to file state taxes Emily can exclude $250,000 of gain and Jamie can exclude $200,000 of gain on the respective sales of their individual homes. Where to file state taxes However, Emily cannot use Jamie's unused exclusion to exclude more than $250,000 of gain. Where to file state taxes Therefore, Emily and Jamie must recognize $50,000 of gain on the sale of Emily's home. Where to file state taxes 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. Where to file state taxes Sale of main home by surviving spouse. Where to file state taxes   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. Where to file state taxes   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. Where to file state taxes The sale or exchange took place after 2008. Where to file state taxes The sale or exchange took place no more than 2 years after the date of death of your spouse. Where to file state taxes You have not remarried. Where to file state taxes You and your spouse met the use test at the time of your spouse's death. Where to file state taxes You or your spouse met the ownership test at the time of your spouse's death. Where to file state taxes Neither you nor your spouse excluded gain from the sale of another home during the last 2 years before the date of death. Where to file state taxes The ownership and use tests were described earlier. Where to file state taxes Example. Where to file state taxes Harry owned and used a house as his main home since 2009. Where to file state taxes Harry and Wilma married on July 1, 2013, and from that date they used Harry's house as their main home. Where to file state taxes Harry died on August 15, 2013, and Wilma inherited the property. Where to file state taxes Wilma sold the property on September 1, 2013, at which time she had not remarried. Where to file state taxes 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. Where to file state taxes Home transferred from spouse. Where to file state taxes   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. Where to file state taxes Use of home after divorce. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes In both cases, to qualify for a reduced exclusion, the sale of your main home must be due to one of the following reasons. Where to file state taxes A change in place of employment. Where to file state taxes Health. Where to file state taxes Unforeseen circumstances. Where to file state taxes Qualified individual. Where to file state taxes   For purposes of the reduced maximum exclusion, a qualified individual is any of the following. Where to file state taxes You. Where to file state taxes Your spouse. Where to file state taxes A co-owner of the home. Where to file state taxes A person whose main home is the same as yours. Where to file state taxes Primary reason for sale. Where to file state taxes   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. Where to file state taxes You qualify under a “safe harbor. Where to file state taxes ” This is a specific set of facts and circumstances that, if applicable, qualifies you to claim a reduced maximum exclusion. Where to file state taxes Safe harbors corresponding to the reasons listed above are described later. Where to file state taxes 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. Where to file state taxes  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. Where to file state taxes 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. Where to file state taxes Employment. Where to file state taxes   For this purpose, employment includes the start of work with a new employer or continuation of work with the same employer. Where to file state taxes It also includes the start or continuation of self-employment. Where to file state taxes Distance safe harbor. Where to file state taxes   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). Where to file state taxes Example. Where to file state taxes Justin was unemployed and living in a townhouse in Florida he had owned and used as his main home since 2012. Where to file state taxes He got a job in North Carolina and sold his townhouse in 2013. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes The sale of your home is not because of health if the sale merely benefits a qualified individual's general health or well-being. Where to file state taxes 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. Where to file state taxes Parent, grandparent, stepmother, stepfather. Where to file state taxes Child, grandchild, stepchild, adopted child, eligible foster child. Where to file state taxes Brother, sister, stepbrother, stepsister, half-brother, half-sister. Where to file state taxes Mother-in-law, father-in-law, brother-in-law, sister-in-law, son-in-law, or daughter-in-law. Where to file state taxes Uncle, aunt, nephew, niece, or cousin. Where to file state taxes Example. Where to file state taxes In 2012, Chase and Lauren, spouses, bought a house that they used as their main home. Where to file state taxes Lauren's father has a chronic disease and is unable to care for himself. Where to file state taxes In 2013, Chase and Lauren sold their home in order to move into Lauren's father's house to provide care for him. Where to file state taxes 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. Where to file state taxes Doctor's recommendation safe harbor. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Specific event safe harbors. Where to file state taxes   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. Where to file state taxes An involuntary conversion of your home, such as when your home is destroyed or condemned. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes An event the IRS determined to be an unforeseen circumstance in published guidance of general applicability. Where to file state taxes For example, the IRS determined the September 11, 2001, terrorist attacks to be an unforeseen circumstance. Where to file state taxes Reasonable basic living expenses. Where to file state taxes   Reasonable basic living expenses for your household include the following. Where to file state taxes Amounts spent for food. Where to file state taxes Amounts spent for clothing. Where to file state taxes Housing and related expenses. Where to file state taxes Medical expenses. Where to file state taxes Transportation expenses. Where to file state taxes Tax payments. Where to file state taxes Court-ordered payments. Where to file state taxes Expenses reasonably necessary to produce income. Where to file state taxes   Any of these amounts spent to maintain an affluent or luxurious standard of living are not reasonable basic living expenses. Where to file state taxes 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. Where to file state taxes 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). Where to file state taxes Exceptions. Where to file state taxes   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. Where to file state taxes Calculation. Where to file state taxes   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. Where to file state taxes   For examples of this calculation, see Business Use or Rental of Home , next. Where to file state taxes 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. Where to file state taxes Example 1. Where to file state taxes On May 23, 2007, Amy, who is unmarried for all years in this example, bought a house. Where to file state taxes 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. Where to file state taxes The house was rented from June 1, 2009, to March 31, 2011. Where to file state taxes Amy claimed depreciation deductions in 2009 through 2011 totaling $10,000. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes Example 2. Where to file state taxes William owned and used a house as his main home from 2007 through 2010. Where to file state taxes On January 1, 2011, he moved to another state. Where to file state taxes He rented his house from that date until April 30, 2013, when he sold it. Where to file state taxes 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. Where to file state taxes Because it was rental property at the time of the sale, he must report the sale on Form 4797. Where to file state taxes 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. Where to file state taxes Because he met the ownership and use tests, he can exclude gain up to $250,000. Where to file state taxes 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. Where to file state taxes Depreciation after May 6, 1997. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes Unrecaptured section 1250 gain. Where to file state taxes   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. Where to file state taxes 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. Where to file state taxes Use the Unrecaptured Section 1250 Gain Worksheet in the Schedule D instructions for this purpose. Where to file state taxes Worksheet 2. Where to file state taxes Taxable Gain on Sale of Home—Completed Example 1 for Amy Part 1. Where to file state taxes Gain or (Loss) on Sale       1. Where to file state taxes   Selling price of home 1. Where to file state taxes     2. Where to file state taxes   Selling expenses (including commissions, advertising and legal fees, and seller-paid loan charges) 2. Where to file state taxes     3. Where to file state taxes   Subtract line 2 from line 1. Where to file state taxes This is the amount realized 3. Where to file state taxes     4. Where to file state taxes   Adjusted basis of home sold (from Worksheet 1, line 13) 4. Where to file state taxes     5. Where to file state taxes   Gain or (loss) on the sale. Where to file state taxes Subtract line 4 from line 3. Where to file state taxes If this is a loss, stop here 5. Where to file state taxes 200,000   Part 2. Where to file state taxes Exclusion and Taxable Gain       6. Where to file state taxes   Enter any depreciation allowed or allowable on the property for periods after May 6, 1997. Where to file state taxes If none, enter -0- 6. Where to file state taxes 10,000   7. Where to file state taxes   Subtract line 6 from line 5. Where to file state taxes If the result is less than zero, enter -0- 7. Where to file state taxes 190,000   8. Where to file state taxes   Aggregate number of days of nonqualified use after 2008. Where to file state taxes If none, enter -0-. Where to file state taxes  If line 8 is equal to zero, skip to line 12 and enter the amount from line 7 on line 12 8. Where to file state taxes 668   9. Where to file state taxes   Number of days taxpayer owned the property 9. Where to file state taxes 2,080   10. Where to file state taxes   Divide the amount on line 8 by the amount on line 9. Where to file state taxes Enter the result as a decimal (rounded to at least 3 places). Where to file state taxes But do not enter an amount greater than 1. Where to file state taxes 00 10. Where to file state taxes 0. Where to file state taxes 321   11. Where to file state taxes   Gain allocated to nonqualified use. Where to file state taxes (Line 7 multiplied by line 10) 11. Where to file state taxes 60,990   12. Where to file state taxes   Gain eligible for exclusion. Where to file state taxes Subtract line 11 from line 7 12. Where to file state taxes 129,010   13. Where to file state taxes   If you qualify to exclude gain on the sale, enter your maximum exclusion (see Maximum Exclusion ). Where to file state taxes  If you qualify for a reduced maximum exclusion, enter the amount from Worksheet 3, line 7. Where to file state taxes If you do  not qualify to exclude gain, enter -0- 13. Where to file state taxes 250,000   14. Where to file state taxes   Exclusion. Where to file state taxes Enter the smaller of line 12 or line 13 14. Where to file state taxes 129,010   15. Where to file state taxes   Taxable gain. Where to file state taxes Subtract line 14 from line 5. Where to file state taxes Report your taxable gain as described under Reporting the Sale . Where to file state taxes If the amount on line 6 is more than zero, complete line 16 15. Where to file state taxes 70,990   16. Where to file state taxes   Enter the smaller of line 6 or line 15. Where to file state taxes Enter this amount on line 12 of the Unrecaptured Section 1250 Gain  Worksheet in the instructions for Schedule D (Form 1040) 16. Where to file state taxes 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. Where to file state taxes 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. Where to file state taxes In addition, you do not need to report the sale of the business or rental part on Form 4797. Where to file state taxes This is true whether or not you were entitled to claim any depreciation. Where to file state taxes However, you cannot exclude the part of any gain equal to any depreciation allowed or allowable after May 6, 1997. Where to file state taxes See Depreciation after May 6, 1997, earlier. Where to file state taxes Example 1. Where to file state taxes Ray sold his main home in 2013 at a $30,000 gain. Where to file state taxes He has no gains or losses from the sale of property other than the gain from the sale of his home. Where to file state taxes He meets the ownership and use tests to exclude the gain from his income. Where to file state taxes However, he used part of the home as a business office in 2012 and claimed $500 depreciation. Where to file state taxes 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. Where to file state taxes In addition, he does not have to report any part of the gain on Form 4797. Where to file state taxes Because Ray was entitled to take a depreciation deduction, he must recognize $500 of the gain as unrecaptured section 1250 gain. Where to file state taxes He reports his gain, exclusion, and the taxable gain of $500 on Form 8949 and Schedule D (Form 1040). Where to file state taxes Example 2. Where to file state taxes 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. Where to file state taxes Since Ray did not claim any depreciation, he can exclude the entire $30,000 gain. Where to file state taxes 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. Where to file state taxes Examples are: A working farm on which your house was located, A duplex in w
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Where to file state taxes 8. Where to file state taxes   Business Expenses Table of Contents Introduction Useful Items - You may want to see: Bad DebtsAccrual method. Where to file state taxes Cash method. Where to file state taxes Car and Truck ExpensesOffice in the home. Where to file state taxes Methods for Deducting Car and Truck Expenses Reimbursing Your Employees for Expenses Depreciation Employees' PayFringe benefits. Where to file state taxes InsuranceHow to figure the deduction. Where to file state taxes Interest Legal and Professional FeesTax preparation fees. Where to file state taxes Pension Plans Rent Expense Taxes Travel, Meals, and EntertainmentTransportation. Where to file state taxes Taxi, commuter bus, and limousine. Where to file state taxes Baggage and shipping. Where to file state taxes Car or truck. Where to file state taxes Meals and lodging. Where to file state taxes Cleaning. Where to file state taxes Telephone. Where to file state taxes Tips. Where to file state taxes More information. Where to file state taxes Business Use of Your HomeExceptions to exclusive use. Where to file state taxes Other Expenses You Can Deduct Expenses You Cannot Deduct Introduction You can deduct the costs of operating your business. Where to file state taxes These costs are known as business expenses. Where to file state taxes These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year. Where to file state taxes To be deductible, a business expense must be both ordinary and necessary. Where to file state taxes An ordinary expense is one that is common and accepted in your field of business. Where to file state taxes A necessary expense is one that is helpful and appropriate for your business. Where to file state taxes An expense does not have to be indispensable to be considered necessary. Where to file state taxes For more information about the general rules for deducting business expenses, see chapter 1 in Publication 535, Business Expenses. Where to file state taxes If you have an expense that is partly for business and partly personal, separate the personal part from the business part. Where to file state taxes The personal part is not deductible. Where to file state taxes Useful Items - You may want to see: Publication 463 Travel, Entertainment, Gift, and Car Expenses 535 Business Expenses 946 How To Depreciate Property See chapter 12 for information about getting publications and forms. Where to file state taxes Bad Debts If someone owes you money you cannot collect, you have a bad debt. Where to file state taxes There are two kinds of bad debts, business bad debts and nonbusiness bad debts. Where to file state taxes A business bad debt is generally one that comes from operating your trade or business. Where to file state taxes You may be able to deduct business bad debts as an expense on your business tax return. Where to file state taxes Business bad debt. Where to file state taxes   A business bad debt is a loss from the worthlessness of a debt that was either of the following. Where to file state taxes Created or acquired in your business. Where to file state taxes Closely related to your business when it became partly or totally worthless. Where to file state taxes A debt is closely related to your business if your primary motive for incurring the debt is a business reason. Where to file state taxes   Business bad debts are mainly the result of credit sales to customers. Where to file state taxes They can also be the result of loans to suppliers, clients, employees, or distributors. Where to file state taxes Goods and services customers have not paid for are shown in your books as either accounts receivable or notes receivable. Where to file state taxes If you are unable to collect any part of these accounts or notes receivable, the uncollectible part is a business bad debt. Where to file state taxes    You can take a bad debt deduction for these accounts and notes receivable only if the amount you were owed was included in your gross income either for the year the deduction is claimed or for a prior year. Where to file state taxes Accrual method. Where to file state taxes   If you use an accrual method of accounting, you normally report income as you earn it. Where to file state taxes You can take a bad debt deduction for an uncollectible receivable if you have included the uncollectible amount in income. Where to file state taxes Cash method. Where to file state taxes   If you use the cash method of accounting, you normally report income when you receive payment. Where to file state taxes You cannot take a bad debt deduction for amounts owed to you that you have not received and cannot collect if you never included those amounts in income. Where to file state taxes More information. Where to file state taxes   For more information about business bad debts, see chapter 10 in Publication 535. Where to file state taxes Nonbusiness bad debts. Where to file state taxes   All other bad debts are nonbusiness bad debts and are deductible as short-term capital losses on Form 8949 and Schedule D (Form 1040). Where to file state taxes For more information on nonbusiness bad debts, see Publication 550, Investment Income and Expenses. Where to file state taxes Car and Truck Expenses If you use your car or truck in your business, you may be able to deduct the costs of operating and maintaining your vehicle. Where to file state taxes You also may be able to deduct other costs of local transportation and traveling away from home overnight on business. Where to file state taxes You may qualify for a tax credit for qualified plug-in electric vehicles, qualified plug-in electric drive motor vehicles, and alternative motor vehicles you place in service during the year. Where to file state taxes See Form 8936 and Form 8910 for more information. Where to file state taxes Local transportation expenses. Where to file state taxes   Local transportation expenses include the ordinary and necessary costs of all the following. Where to file state taxes Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Where to file state taxes Tax home is defined later. Where to file state taxes Visiting clients or customers. Where to file state taxes Going to a business meeting away from your regular workplace. Where to file state taxes Getting from your home to a temporary workplace when you have one or more regular places of work. Where to file state taxes These temporary workplaces can be either within the area of your tax home or outside that area. Where to file state taxes Local business transportation does not include expenses you have while traveling away from home overnight. Where to file state taxes Those expenses are deductible as travel expenses and are discussed later under Travel, Meals, and Entertainment. Where to file state taxes However, if you use your car while traveling away from home overnight, use the rules in this section to figure your car expense deduction. Where to file state taxes   Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Where to file state taxes It includes the entire city or general area in which your business or work is located. Where to file state taxes Example. Where to file state taxes You operate a printing business out of rented office space. Where to file state taxes You use your van to deliver completed jobs to your customers. Where to file state taxes You can deduct the cost of round-trip transportation between your customers and your print shop. Where to file state taxes    You cannot deduct the costs of driving your car or truck between your home and your main or regular workplace. Where to file state taxes These costs are personal commuting expenses. Where to file state taxes Office in the home. Where to file state taxes   Your workplace can be your home if you have an office in your home that qualifies as your principal place of business. Where to file state taxes For more information, see Business Use of Your Home, later. Where to file state taxes Example. Where to file state taxes You are a graphics designer. Where to file state taxes You operate your business out of your home. Where to file state taxes Your home qualifies as your principal place of business. Where to file state taxes You occasionally have to drive to your clients to deliver your completed work. Where to file state taxes You can deduct the cost of the round-trip transportation between your home and your clients. Where to file state taxes Methods for Deducting Car and Truck Expenses For local transportation or overnight travel by car or truck, you generally can use one of the following methods to figure your expenses. Where to file state taxes Standard mileage rate. Where to file state taxes Actual expenses. Where to file state taxes Standard mileage rate. Where to file state taxes   You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Where to file state taxes For 2013, the standard mileage rate is 56. Where to file state taxes 5 cents per mile. Where to file state taxes    If you choose to use the standard mileage rate for a year, you cannot deduct your actual expenses for that year except for business-related parking fees and tolls. Where to file state taxes Choosing the standard mileage rate. Where to file state taxes   If you want to use the standard mileage rate for a car or truck you own, you must choose to use it in the first year the car is available for use in your business. Where to file state taxes In later years, you can choose to use either the standard mileage rate or actual expenses. Where to file state taxes   If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Where to file state taxes Standard mileage rate not allowed. Where to file state taxes   You cannot use the standard mileage rate if you: Operate five or more cars at the same time, Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS, Claimed a section 179 deduction on the car, Claimed the special depreciation allowance on the car, Claimed actual car expenses for a car you leased, or Are a rural mail carrier who received a qualified reimbursement. Where to file state taxes Parking fees and tolls. Where to file state taxes   In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Where to file state taxes (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses. Where to file state taxes ) Actual expenses. Where to file state taxes   If you do not choose to use the standard mileage rate, you may be able to deduct your actual car or truck expenses. Where to file state taxes    If you qualify to use both methods, figure your deduction both ways to see which gives you a larger deduction. Where to file state taxes   Actual car expenses include the costs of the following items. Where to file state taxes Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls   If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Where to file state taxes You can divide your expenses based on the miles driven for each purpose. Where to file state taxes Example. Where to file state taxes You are the sole proprietor of a flower shop. Where to file state taxes You drove your van 20,000 miles during the year. Where to file state taxes 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use (including commuting miles). Where to file state taxes You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Where to file state taxes More information. Where to file state taxes   For more information about the rules for claiming car and truck expenses, see Publication 463. Where to file state taxes Reimbursing Your Employees for Expenses You generally can deduct the amount you reimburse your employees for car and truck expenses. Where to file state taxes The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Where to file state taxes For details, see chapter 11 in Publication 535. Where to file state taxes That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Where to file state taxes Depreciation If property you acquire to use in your business is expected to last more than 1 year, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Where to file state taxes You must spread the cost over more than 1 tax year and deduct part of it each year on Schedule C. Where to file state taxes This method of deducting the cost of business property is called depreciation. Where to file state taxes The discussion here is brief. Where to file state taxes You will find more information about depreciation in Publication 946. Where to file state taxes What property can be depreciated?   You can depreciate property if it meets all the following requirements. Where to file state taxes It must be property you own. Where to file state taxes It must be used in business or held to produce income. Where to file state taxes You never can depreciate inventory (explained in chapter 2) because it is not held for use in your business. Where to file state taxes It must have a useful life that extends substantially beyond the year it is placed in service. Where to file state taxes It must have a determinable useful life, which means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. Where to file state taxes You never can depreciate the cost of land because land does not wear out, become obsolete, or get used up. Where to file state taxes It must not be excepted property. Where to file state taxes This includes property placed in service and disposed of in the same year. Where to file state taxes Repairs. Where to file state taxes    You cannot depreciate repairs and replacements that do not increase the value of your property, make it more useful, or lengthen its useful life. Where to file state taxes You can deduct these amounts on line 21 of Schedule C or line 2 of Schedule C-EZ. Where to file state taxes Depreciation method. Where to file state taxes   The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS). Where to file state taxes MACRS is discussed in detail in Publication 946. Where to file state taxes Section 179 deduction. Where to file state taxes   You can elect to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Where to file state taxes This deduction is known as the “section 179 deduction. Where to file state taxes ” The maximum amount you can elect to deduct during 2013 is generally $500,000 (higher limits apply to certain property). Where to file state taxes See IRC 179(e). Where to file state taxes   This limit is generally reduced by the amount by which the cost of the property placed in service during the tax year exceeds $2 million. Where to file state taxes The total amount of depreciation (including the section 179 deduction) you can take for a passenger automobile you use in your business and first place in service in 2013 is $3,160 ($11,160 if you take the special depreciation allowance for qualified passenger automobiles placed in service in 2013). Where to file state taxes Special rules apply to trucks and vans. Where to file state taxes For more information, see Publication 946. Where to file state taxes It explains what property qualifies for the deduction, what limits apply to the deduction, and when and how to recapture the deduction. Where to file state taxes    Your section 179 election for the cost of any sport utility vehicle (SUV) and certain other vehicles is limited to $25,000. Where to file state taxes For more information, see the Instructions for Form 4562 or Publication 946. Where to file state taxes Listed property. Where to file state taxes   You must follow special rules and recordkeeping requirements when depreciating listed property. Where to file state taxes Listed property is any of the following. Where to file state taxes Most passenger automobiles. Where to file state taxes Most other property used for transportation. Where to file state taxes Any property of a type generally used for entertainment, recreation, or amusement. Where to file state taxes Certain computers and related peripheral equipment. Where to file state taxes   For more information about listed property, see Publication 946. Where to file state taxes Form 4562. Where to file state taxes   Use Form 4562, Depreciation and Amortization, if you are claiming any of the following. Where to file state taxes Depreciation on property placed in service during the current tax year. Where to file state taxes A section 179 deduction. Where to file state taxes Depreciation on any listed property (regardless of when it was placed in service). Where to file state taxes    If you have to use Form 4562, you must file Schedule C. Where to file state taxes You cannot use Schedule C-EZ. Where to file state taxes   Employees' Pay You can generally deduct on Schedule C the pay you give your employees for the services they perform for your business. Where to file state taxes The pay may be in cash, property, or services. Where to file state taxes To be deductible, your employees' pay must be an ordinary and necessary expense and you must pay or incur it in the tax year. Where to file state taxes In addition, the pay must meet both the following tests. Where to file state taxes The pay must be reasonable. Where to file state taxes The pay must be for services performed. Where to file state taxes Chapter 2 in Publication 535 explains and defines these requirements. Where to file state taxes You cannot deduct your own salary or any personal withdrawals you make from your business. Where to file state taxes As a sole proprietor, you are not an employee of the business. Where to file state taxes If you had employees during the year, you must use Schedule C. Where to file state taxes You cannot use Schedule C-EZ. Where to file state taxes Kinds of pay. Where to file state taxes   Some of the ways you may provide pay to your employees are listed below. Where to file state taxes For an explanation of each of these items, see chapter 2 in Publication 535. Where to file state taxes Awards. Where to file state taxes Bonuses. Where to file state taxes Education expenses. Where to file state taxes Fringe benefits (discussed later). Where to file state taxes Loans or advances you do not expect the employee to repay if they are for personal services actually performed. Where to file state taxes Property you transfer to an employee as payment for services. Where to file state taxes Reimbursements for employee business expenses. Where to file state taxes Sick pay. Where to file state taxes Vacation pay. Where to file state taxes Fringe benefits. Where to file state taxes   A fringe benefit is a form of pay for the performance of services. Where to file state taxes The following are examples of fringe benefits. Where to file state taxes Benefits under qualified employee benefit programs. Where to file state taxes Meals and lodging. Where to file state taxes The use of a car. Where to file state taxes Flights on airplanes. Where to file state taxes Discounts on property or services. Where to file state taxes Memberships in country clubs or other social clubs. Where to file state taxes Tickets to entertainment or sporting events. Where to file state taxes   Employee benefit programs include the following. Where to file state taxes Accident and health plans. Where to file state taxes Adoption assistance. Where to file state taxes Cafeteria plans. Where to file state taxes Dependent care assistance. Where to file state taxes Educational assistance. Where to file state taxes Group-term life insurance coverage. Where to file state taxes Welfare benefit funds. Where to file state taxes   You can generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls. Where to file state taxes For example, if you allow an employee to use a car or other property you lease, deduct the cost of the lease as a rent or lease expense. Where to file state taxes If you own the property, include your deduction for its cost or other basis as a section 179 deduction or a depreciation deduction. Where to file state taxes    You may be able to exclude all or part of the fringe benefits you provide from your employees' wages. Where to file state taxes For more information about fringe benefits and the exclusion of benefits, see Publication 15-B, Employer's Tax Guide to Fringe Benefits. Where to file state taxes Insurance You can generally deduct premiums you pay for the following kinds of insurance related to your business. Where to file state taxes Fire, theft, flood, or similar insurance. Where to file state taxes Credit insurance that covers losses from business bad debts. Where to file state taxes Group hospitalization and medical insurance for employees, including long-term care insurance. Where to file state taxes Liability insurance. Where to file state taxes Malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients. Where to file state taxes Workers' compensation insurance set by state law that covers any claims for bodily injuries or job-related diseases suffered by employees in your business, regardless of fault. Where to file state taxes Contributions to a state unemployment insurance fund are deductible as taxes if they are considered taxes under state law. Where to file state taxes Overhead insurance that pays for business overhead expenses you have during long periods of disability caused by your injury or sickness. Where to file state taxes Car and other vehicle insurance that covers vehicles used in your business for liability, damages, and other losses. Where to file state taxes If you operate a vehicle partly for personal use, deduct only the part of the insurance premium that applies to the business use of the vehicle. Where to file state taxes If you use the standard mileage rate to figure your car expenses, you cannot deduct any car insurance premiums. Where to file state taxes Life insurance covering your employees if you are not directly or indirectly the beneficiary under the contract. Where to file state taxes Business interruption insurance that pays for lost profits if your business is shut down due to a fire or other cause. Where to file state taxes Nondeductible premiums. Where to file state taxes   You cannot deduct premiums on the following kinds of insurance. Where to file state taxes Self-insurance reserve funds. Where to file state taxes You cannot deduct amounts credited to a reserve set up for self-insurance. Where to file state taxes This applies even if you cannot get business insurance coverage for certain business risks. Where to file state taxes However, your actual losses may be deductible. Where to file state taxes For more information, see Publication 547, Casualties, Disasters, and Thefts. Where to file state taxes Loss of earnings. Where to file state taxes You cannot deduct premiums for a policy that pays for your lost earnings due to sickness or disability. Where to file state taxes However, see item (8) in the previous list. Where to file state taxes Certain life insurance and annuities. Where to file state taxes For contracts issued before June 9, 1997, you cannot deduct the premiums on a life insurance policy covering you, an employee, or any person with a financial interest in your business if you are directly or indirectly a beneficiary of the policy. Where to file state taxes You are included among possible beneficiaries of the policy if the policy owner is obligated to repay a loan from you using the proceeds of the policy. Where to file state taxes A person has a financial interest in your business if the person is an owner or part owner of the business or has lent money to the business. Where to file state taxes For contracts issued after June 8, 1997, you generally cannot deduct the premiums on any life insurance policy, endowment contract, or annuity contract if you are directly or indirectly a beneficiary. Where to file state taxes The disallowance applies without regard to whom the policy covers. Where to file state taxes Insurance to secure a loan. Where to file state taxes If you take out a policy on your life or on the life of another person with a financial interest in your business to get or protect a business loan, you cannot deduct the premiums as a business expense. Where to file state taxes Nor can you deduct the premiums as interest on business loans or as an expense of financing loans. Where to file state taxes In the event of death, the proceeds of the policy are not taxed as income even if they are used to liquidate the debt. Where to file state taxes Self-employed health insurance deduction. Where to file state taxes   You may be able to deduct the amount you paid for medical and dental insurance and qualified long-term care insurance for you and your family. Where to file state taxes How to figure the deduction. Where to file state taxes   Generally, you can use the worksheet in the Form 1040 instructions to figure your deduction. Where to file state taxes However, if any of the following apply, you must use the worksheet in chapter 6 of Publication 535. Where to file state taxes You have more than one source of income subject to self-employment tax. Where to file state taxes You file Form 2555 or Form 2555-EZ (relating to foreign earned income). Where to file state taxes You are using amounts paid for qualified long-term care insurance to figure the deduction. Where to file state taxes Prepayment. Where to file state taxes   You cannot deduct expenses in advance, even if you pay them in advance. Where to file state taxes This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Where to file state taxes Example. Where to file state taxes In 2013, you signed a 3-year insurance contract. Where to file state taxes Even though you paid the premiums for 2013, 2014, and 2015 when you signed the contract, you can only deduct the premium for 2013 on your 2013 tax return. Where to file state taxes You can deduct in 2014 and 2015 the premium allocable to those years. Where to file state taxes More information. Where to file state taxes   For more information about deducting insurance, see chapter 6 in Publication 535. Where to file state taxes Interest You can generally deduct as a business expense all interest you pay or accrue during the tax year on debts related to your business. Where to file state taxes Interest relates to your business if you use the proceeds of the loan for a business expense. Where to file state taxes It does not matter what type of property secures the loan. Where to file state taxes You can deduct interest on a debt only if you meet all of the following requirements. Where to file state taxes You are legally liable for that debt. Where to file state taxes Both you and the lender intend that the debt be repaid. Where to file state taxes You and the lender have a true debtor-creditor relationship. Where to file state taxes You cannot deduct on Schedule C or C-EZ the interest you paid on personal loans. Where to file state taxes If a loan is part business and part personal, you must divide the interest between the personal part and the business part. Where to file state taxes Example. Where to file state taxes In 2013, you paid $600 interest on a car loan. Where to file state taxes During 2013, you used the car 60% for business and 40% for personal purposes. Where to file state taxes You are claiming actual expenses on the car. Where to file state taxes You can only deduct $360 (60% × $600) for 2013 on Schedule C or C-EZ. Where to file state taxes The remaining interest of $240 is a nondeductible personal expense. Where to file state taxes More information. Where to file state taxes   For more information about deducting interest, see chapter 4 in Publication 535. Where to file state taxes That chapter explains the following items. Where to file state taxes Interest you can deduct. Where to file state taxes Interest you cannot deduct. Where to file state taxes How to allocate interest between personal and business use. Where to file state taxes When to deduct interest. Where to file state taxes The rules for a below-market interest rate loan. Where to file state taxes (This is generally a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. Where to file state taxes ) Legal and Professional Fees Legal and professional fees, such as fees charged by accountants, that are ordinary and necessary expenses directly related to operating your business are deductible on Schedule C or C-EZ. Where to file state taxes However, you usually cannot deduct legal fees you pay to acquire business assets. Where to file state taxes Add them to the basis of the property. Where to file state taxes If the fees include payments for work of a personal nature (such as making a will), you can take a business deduction only for the part of the fee related to your business. Where to file state taxes The personal part of legal fees for producing or collecting taxable income, doing or keeping your job, or for tax advice may be deductible on Schedule A (Form 1040) if you itemize deductions. Where to file state taxes For more information, see Publication 529, Miscellaneous Deductions. Where to file state taxes Tax preparation fees. Where to file state taxes   You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor or statutory employee. Where to file state taxes You can deduct the remaining cost on Schedule A (Form 1040) if you itemize your deductions. Where to file state taxes   You can also deduct on Schedule C or C-EZ the amount you pay or incur in resolving asserted tax deficiencies for your business as a sole proprietor or statutory employee. Where to file state taxes Pension Plans You can set up and maintain the following small business retirement plans for yourself and your employees. Where to file state taxes SEP (Simplified Employee Pension) plans. Where to file state taxes SIMPLE (Savings Incentive Match Plan for Employees) plans. Where to file state taxes Qualified plans (including Keogh or H. Where to file state taxes R. Where to file state taxes 10 plans). Where to file state taxes SEP, SIMPLE, and qualified plans offer you and your employees a tax favored way to save for retirement. Where to file state taxes You can deduct contributions you make to the plan for your employees on line 19 of Schedule C. Where to file state taxes If you are a sole proprietor, you can deduct contributions you make to the plan for yourself on line 28 of Form 1040. Where to file state taxes You can also deduct trustees' fees if contributions to the plan do not cover them. Where to file state taxes Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan. Where to file state taxes You may also be able to claim a tax credit of 50% of the first $1,000 of qualified startup costs if you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension. Where to file state taxes Under certain plans, employees can have you contribute limited amounts of their before-tax pay to a plan. Where to file state taxes These amounts (and earnings on them) are generally tax free until your employees receive distributions from the plan. Where to file state taxes For more information on retirement plans for small business, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans). Where to file state taxes Publication 590, Individual Retirement Arrangements (IRAs), discusses other tax favored ways to save for retirement. Where to file state taxes Rent Expense Rent is any amount you pay for the use of property you do not own. Where to file state taxes In general, you can deduct rent as a business expense only if the rent is for property you use in your business. Where to file state taxes If you have or will receive equity in or title to the property, you cannot deduct the rent. Where to file state taxes Unreasonable rent. Where to file state taxes   You cannot take a rental deduction for unreasonable rents. Where to file state taxes Ordinarily, the issue of reasonableness arises only if you and the lessor are related. Where to file state taxes Rent paid to a related person is reasonable if it is the same amount you would pay to a stranger for use of the same property. Where to file state taxes Rent is not unreasonable just because it is figured as a percentage of gross receipts. Where to file state taxes   Related persons include members of your immediate family, including only brothers and sisters (either whole or half), your spouse, ancestors, and lineal descendants. Where to file state taxes For a list of the other related persons, see section 267 of the Internal Revenue Code. Where to file state taxes Rent on your home. Where to file state taxes   If you rent your home and use part of it as your place of business, you may be able to deduct the rent you pay for that part. Where to file state taxes You must meet the requirements for business use of your home. Where to file state taxes For more information, see Business Use of Your Home , later. Where to file state taxes Rent paid in advance. Where to file state taxes   Generally, rent paid in your business is deductible in the year paid or accrued. Where to file state taxes If you pay rent in advance, you can deduct only the amount that applies to your use of the rented property during the tax year. Where to file state taxes You can deduct the rest of your payment only over the period to which it applies. Where to file state taxes More information. Where to file state taxes   For more information about rent, see chapter 3 in Publication 535. Where to file state taxes Taxes You can deduct on Schedule C or C-EZ various federal, state, local, and foreign taxes directly attributable to your business. Where to file state taxes Income taxes. Where to file state taxes   You can deduct on Schedule C or C-EZ a state tax on gross income (as distinguished from net income) directly attributable to your business. Where to file state taxes You can deduct other state and local income taxes on Schedule A (Form 1040) if you itemize your deductions. Where to file state taxes Do not deduct federal income tax. Where to file state taxes Employment taxes. Where to file state taxes   You can deduct the social security, Medicare, and federal unemployment (FUTA) taxes you paid out of your own funds as an employer. Where to file state taxes Employment taxes are discussed briefly in chapter 1. Where to file state taxes You can also deduct payments you made as an employer to a state unemployment compensation fund or to a state disability benefit fund. Where to file state taxes Deduct these payments as taxes. Where to file state taxes Self-employment tax. Where to file state taxes   You can deduct one-half of your self-employment tax on line 27 of Form 1040. Where to file state taxes Self-employment tax is discussed in chapters 1 and 10. Where to file state taxes Personal property tax. Where to file state taxes   You can deduct on Schedule C or C-EZ any tax imposed by a state or local government on personal property used in your business. Where to file state taxes   You can also deduct registration fees for the right to use property within a state or local area. Where to file state taxes Example. Where to file state taxes May and Julius Winter drove their car 7,000 business miles out of a total of 10,000 miles. Where to file state taxes They had to pay $25 for their annual state license tags and $20 for their city registration sticker. Where to file state taxes They also paid $235 in city personal property tax on the car, for a total of $280. Where to file state taxes They are claiming their actual car expenses. Where to file state taxes Because they used the car 70% for business, they can deduct 70% of the $280, or $196, as a business expense. Where to file state taxes Real estate taxes. Where to file state taxes   You can deduct on Schedule C or C-EZ the real estate taxes you pay on your business property. Where to file state taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Where to file state taxes The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Where to file state taxes   For more information about real estate taxes, see chapter 5 in Publication 535. Where to file state taxes That chapter explains special rules for deducting the following items. Where to file state taxes Taxes for local benefits, such as those for sidewalks, streets, water mains, and sewer lines. Where to file state taxes Real estate taxes when you buy or sell property during the year. Where to file state taxes Real estate taxes if you use an accrual method of accounting and choose to accrue real estate tax related to a definite period ratably over that period. Where to file state taxes Sales tax. Where to file state taxes   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Where to file state taxes If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Where to file state taxes If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Where to file state taxes If the property is depreciable, add the sales tax to the basis for depreciation. Where to file state taxes For information on the basis of property, see Publication 551, Basis of Assets. Where to file state taxes    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Where to file state taxes Do not include these taxes in gross receipts or sales. Where to file state taxes Excise taxes. Where to file state taxes   You can deduct on Schedule C or C-EZ all excise taxes that are ordinary and necessary expenses of carrying on your business. Where to file state taxes Excise taxes are discussed briefly in chapter 1. Where to file state taxes Fuel taxes. Where to file state taxes   Taxes on gasoline, diesel fuel, and other motor fuels you use in your business are usually included as part of the cost of the fuel. Where to file state taxes Do not deduct these taxes as a separate item. Where to file state taxes   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Where to file state taxes For more information, see Publication 510, Excise Taxes. Where to file state taxes Travel, Meals, and Entertainment This section briefly explains the kinds of travel and entertainment expenses you can deduct on Schedule C or C-EZ. Where to file state taxes Table 8-1. Where to file state taxes When Are Entertainment Expenses Deductible? (Note. Where to file state taxes The following is a summary of the rules for deducting entertainment expenses. Where to file state taxes For more details about these rules, see Publication 463. Where to file state taxes ) General rule You can deduct ordinary and necessary expenses to entertain a client, customer, or employee if the expenses meet the directly-related test or the associated test. Where to file state taxes Definitions Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation, and includes meals provided to a customer or client. Where to file state taxes An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Where to file state taxes A necessary expense is one that is helpful and appropriate, although not necessarily required, for your business. Where to file state taxes Tests to be met Directly-related test Entertainment took place in a clear business setting, or Main purpose of entertainment was the active conduct of business, and You did engage in business with the person during the entertainment period, and You had more than a general expectation of getting income or some other specific business benefit. Where to file state taxes   Associated test Entertainment is associated with your trade or business, and Entertainment directly precedes or follows a substantial business discussion. Where to file state taxes Other rules You cannot deduct the cost of your meal as an entertainment expense if you are claiming the meal as a travel expense. Where to file state taxes You cannot deduct expenses that are lavish or extravagant under the circumstances. Where to file state taxes You generally can deduct only 50% of your unreimbursed entertainment expenses. Where to file state taxes Travel expenses. Where to file state taxes   These are the ordinary and necessary expenses of traveling away from home for your business. Where to file state taxes You are traveling away from home if both the following conditions are met. Where to file state taxes Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work. Where to file state taxes You need to get sleep or rest to meet the demands of your work while away from home. Where to file state taxes Generally, your tax home is your regular place of business, regardless of where you maintain your family home. Where to file state taxes It includes the entire city or general area in which your business is located. Where to file state taxes See Publication 463 for more information. Where to file state taxes   The following is a brief discussion of the expenses you can deduct. Where to file state taxes Transportation. Where to file state taxes   You can deduct the cost of travel by airplane, train, bus, or car between your home and your business destination. Where to file state taxes Taxi, commuter bus, and limousine. Where to file state taxes   You can deduct fares for these and other types of transportation between the airport or station and your hotel, or between the hotel and your work location away from home. Where to file state taxes Baggage and shipping. Where to file state taxes   You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations. Where to file state taxes Car or truck. Where to file state taxes   You can deduct the costs of operating and maintaining your vehicle when traveling away from home on business. Where to file state taxes You can deduct actual expenses or the standard mileage rate (discussed earlier under Car and Truck Expenses), as well as business-related tolls and parking. Where to file state taxes If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses. Where to file state taxes Meals and lodging. Where to file state taxes   You can deduct the cost of meals and lodging if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Where to file state taxes In most cases, you can deduct only 50% of your meal expenses. Where to file state taxes Cleaning. Where to file state taxes   You can deduct the costs of dry cleaning and laundry while on your business trip. Where to file state taxes Telephone. Where to file state taxes   You can deduct the cost of business calls while on your business trip, including business communication by fax machine or other communication devices. Where to file state taxes Tips. Where to file state taxes   You can deduct the tips you pay for any expense in this list. Where to file state taxes More information. Where to file state taxes   For more information about travel expenses, see Publication 463. Where to file state taxes Entertainment expenses. Where to file state taxes   You may be able to deduct business-related entertainment expenses for entertaining a client, customer, or employee. Where to file state taxes In most cases, you can deduct only 50% of these expenses. Where to file state taxes   The following are examples of entertainment expenses. Where to file state taxes Entertaining guests at nightclubs, athletic clubs, theaters, or sporting events. Where to file state taxes Providing meals, a hotel suite, or a car to business customers or their families. Where to file state taxes To be deductible, the expenses must meet the rules listed in Table 8-1. Where to file state taxes For details about these rules, see Publication 463. Where to file state taxes Reimbursing your employees for expenses. Where to file state taxes   You generally can deduct the amount you reimburse your employees for travel and entertainment expenses. Where to file state taxes The reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a nonaccountable plan. Where to file state taxes For details, see chapter 11 in Publication 535. Where to file state taxes That chapter explains accountable and nonaccountable plans and tells you whether to report the reimbursement on your employee's Form W-2, Wage and Tax Statement. Where to file state taxes Business Use of Your Home To deduct expenses related to the part of your home used for business, you must meet specific requirements. Where to file state taxes Even then, your deduction may be limited. Where to file state taxes To qualify to claim expenses for business use of your home, you must meet the following tests. Where to file state taxes Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use , later), Regular, For your business, and The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your business, or A separate structure (not attached to your home) you use in connection with your business. Where to file state taxes Exclusive use. Where to file state taxes   To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Where to file state taxes The area used for business can be a room or other separately identifiable space. Where to file state taxes The space does not need to be marked off by a permanent partition. Where to file state taxes   You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Where to file state taxes Example. Where to file state taxes You are an attorney and use a den in your home to write legal briefs and prepare clients' tax returns. Where to file state taxes Your family also uses the den for recreation. Where to file state taxes The den is not used exclusively in your profession, so you cannot claim a business deduction for its use. Where to file state taxes Exceptions to exclusive use. Where to file state taxes   You do not have to meet the exclusive use test if you use part of your home in either of the following ways. Where to file state taxes For the storage of inventory or product samples. Where to file state taxes As a daycare facility. Where to file state taxes For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Where to file state taxes Regular use. Where to file state taxes   To qualify under the regular use test, you must use a specific area of your home for business on a continuing basis. Where to file state taxes You do not meet the test if your business use of the area is only occasional or incidental, even if you do not use that area for any other purpose. Where to file state taxes Principal place of business. Where to file state taxes   You can have more than one business location, including your home, for a single trade or business. Where to file state taxes To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that business. Where to file state taxes To determine your principal place of business, you must consider all the facts and circumstances. Where to file state taxes   Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Where to file state taxes You use it exclusively and regularly for administrative or management activities of your business. Where to file state taxes You have no other fixed location where you conduct substantial administrative or management activities of your business. Where to file state taxes   Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Where to file state taxes The relative importance of the activities performed at each location. Where to file state taxes If the relative importance factor does not determine your principal place of business, you can also consider the time spent at each location. Where to file state taxes   If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Where to file state taxes However, for other ways to qualify to deduct home office expenses, see Publication 587. Where to file state taxes Deduction limit. Where to file state taxes   If your gross income from the business use of your home equals or exceeds your total business expenses (including depreciation), you can deduct all your business expenses related to the use of your home. Where to file state taxes If your gross income from the business use is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited. Where to file state taxes   Your deduction of otherwise nondeductible expenses, such as insurance, utilities, and depreciation (with depreciation taken last), allocable to the business is limited to the gross income from the business use of your home minus the sum of the following. Where to file state taxes The business part of expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions on Schedule A (Form 1040)). Where to file state taxes The business expenses that relate to the business activity in the home (for example, business phone, supplies, and depreciation on equipment), but not to the use of the home itself. Where to file state taxes Do not include in (2) above your deduction for one-half of your self-employment tax. Where to file state taxes   Use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Where to file state taxes New simplified method. Where to file state taxes    The IRS now provides a simplified method to determine your expenses for business use of your home. Where to file state taxes The simplified method is an alternative to calculating and substantiating actual expenses. Where to file state taxes In most cases, you will figure your deduction by multiplying $5 by the area of your home used for a qualified business use. Where to file state taxes The area you use to figure your deduction is limited to 300 square feet. Where to file state taxes For more information, see the Instructions for Schedule C. Where to file state taxes More information. Where to file state taxes   For more information on deducting expenses for the business use of your home, see Publication 587. Where to file state taxes Other Expenses You Can Deduct You may also be able to deduct the following expenses. Where to file state taxes See Publication 535 to find out whether you can deduct them. Where to file state taxes Advertising. Where to file state taxes Bank fees. Where to file state taxes Donations to business organizations. Where to file state taxes Education expenses. Where to file state taxes Energy efficient commercial buildings deduction expenses. Where to file state taxes Impairment-related expenses. Where to file state taxes Interview expense allowances. Where to file state taxes Licenses and regulatory fees. Where to file state taxes Moving machinery. Where to file state taxes Outplacement services. Where to file state taxes Penalties and fines you pay for late performance or nonperformance of a contract. Where to file state taxes Repairs that keep your property in a normal efficient operating condition. Where to file state taxes Repayments of income. Where to file state taxes Subscriptions to trade or professional publications. Where to file state taxes Supplies and materials. Where to file state taxes Utilities. Where to file state taxes Expenses You Cannot Deduct You usually cannot deduct the following as business expenses. Where to file state taxes For more information, see Publication 535. Where to file state taxes Bribes and kickbacks. Where to file state taxes Charitable contributions. Where to file state taxes Demolition expenses or losses. Where to file state taxes Dues to business, social, athletic, luncheon, sporting, airline, and hotel clubs. Where to file state taxes Lobbying expenses. Where to file state taxes Penalties and fines you pay to a governmental agency or instrumentality because you broke the law. Where to file state taxes Personal, living, and family expenses. Where to file state taxes Political contributions. Where to file state taxes Repairs that add to the value of your property or significantly increase its life. Where to file state taxes Prev  Up  Next   Home   More Online Publications