Ten Key Tax Facts about Home Sales

In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year.

1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.
3. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
7. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
9. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.
10. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Tips on Travel While Giving Your Services to Charity

Do you plan to donate your services to charity this summer? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year. Here are several tax tips that you should know if you travel while giving your services to charity.

• Qualified Charities.  In order to deduct your costs, your volunteer work must be for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are qualified, and do not need to apply to the IRS. Ask the group about its IRS status before you donate. You can also use the Select Check tool on IRS.gov to check the group’s status.

• Out-of-Pocket Expenses.  You may be able to deduct some costs you pay to give your services. This can include the cost of travel. The costs must be necessary while you are away from home giving your services for a qualified charity. All  costs must be:

o Unreimbursed,

o Directly connected with the services,

o Expenses you had only because of the services you gave, and

o Not personal, living or family expenses.

• Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

• Value of Time or Service.  You can’t deduct the value of your services that you give to charity. This includes income lost while you work as an unpaid volunteer for a qualified charity.

• Deductible travel.  The types of expenses that you may be able to deduct include:

o Air, rail and bus transportation,

o Car expenses,

o Lodging costs,

o The cost of meals, and

o Taxi or other transportation costs between the airport or station and your hotel.

• Nondeductible Travel.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation.

For more on these rules, see Publication 526, Charitable Contributions. You can get it on IRS.gov/forms at any time.

Review Your Taxes This Summer to Prevent a Surprise Next Spring

Each year, many people get a larger refund than they expected. Some find they owe a lot more tax than they thought they would. If this happened to you, review your situation to prevent another tax surprise. Did you marry? Have a child? Have a change in income? Some life events can have a major effect on your taxes. You can bring the tax you pay closer to the amount you owe. Here are some key IRS tips to help you come up with a plan of action:

• New Job.   When you start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Your employer will use the form to figure the amount of federal income tax to withhold from your pay. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. This tool is easy to use and it’s available 24/7.
• Estimated Tax.  If you earn income that is not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, dividends or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay it four times a year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to figure the tax.
• Life Events.  Check to see if you need to change your Form W-4 or change the amount of estimated tax you pay when certain life events take place. A change in your marital status, the birth of a child or buying a new home can change the amount of taxes you owe. In most cases, you can submit a new Form W–4 to your employer anytime. 
• Changes in Circumstances.   If you are receiving advance payments of the premium tax credit, it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

The deadline for filing a business tax return or tax extension is the same date. For example, if your business return is due by March 16, you must file Form 7004 by March 16 in order to get an extension.

Business owners who report their business activities on their personal tax return (including sole proprietorships and single-member LLCs) should not request a business extension with Form 7004. Instead, these taxpayers should request a personal extension with Form 4868 to extend the filing deadline for both their personal and business taxes. Form 4868 must be filed by the original due date of your personal tax return (usually April 15).

Here are the original filing due dates for various types of business entities (for calendar year filers):

• Sole Proprietorships (Form 1040): April 15
• Single-Member LLCs (Form 1040): April 15
• Partnerships (Form 1065): April 15
• Estates & Trusts (Form 1041): April 15
• Corporations (Form 1120): March 15 (March 16, 2015 this year)
• S-Corporations (Form 1120S): March 15 (March 16, 2015 this year)
• Homeowners Associations (Form 1120-H): March 15 (March 16, 2015 this year)
• Cooperative Associations (Form 1120-C): March 15 (March 16, 2015 this year)
• Real Estate Investment Trusts, REITs (Form 1120-REIT): March 15 (March 16, 2015 this year)
• Real Estate Mortgage Investment Conduits, REMICs (Form 1066): April 15

NOTE: If a corporation files based on the fiscal year, the original filing due date is the 15th day of the 3rd month following the close of the taxable year.

A business tax extension will give you either 5 or 6 more months to file. Businesses that are requesting an extension for Form 1065 (partnerships), Form 8804 (partnership withholding), or Form 1041 (trusts and non-bankruptcy estates) are limited to a 5-month extension. Most other types of businesses, including corporations and REITs, are permitted a 6-month tax extension.

If your business return is originally due by March 16, 2015 and you obtain a 6-month extension, you will have until September 15, 2015 to file your return. If you business return is originally due by April 15, 2015 and you obtain a 5-month extension, you will have until September 15, 2015 to file your return.

It’s highly recommended that you use an Authorized IRS e-file Provider to file your taxes online.

Most people claim the standard deduction when they file their federal tax return. But did you know that you may lower your taxes if you itemize your deductions? Find out if you can save by doing your taxes using both methods. Usually, the bigger the deduction, the lower the tax you have to pay. You should file your tax return using the method that allows you to pay the least amount of tax. The IRS offers these five tips to help you choose:

1. Figure your itemized deductions. Add up deductible expenses you paid during the year. These may include expenses such as:

Home mortgage interest
State and local income taxes or sales taxes (but not both)
Real estate and personal property taxes
Gifts to charities
Casualty or theft losses
Unreimbursed medical expenses
Unreimbursed employee business expenses
Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax, for more details.

2. Know your standard deduction. If you don’t itemize, your basic standard deduction for 2014 depends on your filing status:

Single $6,200
Married Filing Jointly $12,400
Head of Household $9,100
Married Filing Separately $6,200
Qualifying Widow(er) $12,400
If you’re 65 or older or blind, your standard deduction is higher than these amounts. If someone can claim you as a dependent, your deduction may be limited.

3. Check the exceptions. There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if you are married filing a separate return and your spouse itemizes. In this case, you can’t claim a standard deduction. You usually will pay less tax if you itemize. See Pub. 17 for more on these rules.

4. Use the IRS ITA tool. Visit IRS.gov and use the Interactive Tax Assistant that takes you through a series of questions just like one of our customer service representatives would. The tool can help determine your standard deduction. It can also help you figure several of your itemized deductions.

5. File the right forms. To itemize your deductions, use Form 1040 and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

Some people take an early withdrawal from their IRA or retirement plan. Doing so in many cases triggers an added tax on top of the income tax you may have to pay. Here are some key points you should know about taking an early distribution:

1.Early Withdrawals. An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.

2.Additional Tax. If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an added 10 percent tax.

3.Nontaxable Withdrawals. The added 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.

4.Check Exceptions. There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs. See IRS.gov for details about these rules.

5.File Form 5329. If you made an early withdrawal last year, you may need to file a form with your federal tax return. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, for details.

When you sell a capital asset the sale results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:

1. Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.

2. Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.

3. Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax. This tax applies to certain net investment income of individuals, estates and trusts that have income above statutory threshold amounts. The rate of this tax is 3.8 percent. For details visit IRS.gov.

4. Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.

5. Long and Short Term. Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.

6. Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.

7. Tax Rate. The capital gains tax rate usually depends on your income. The maximum net capital gain tax rate is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gains.

8. Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.

9. Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened in that next year.

10. Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your tax return.

All income is taxable unless the law excludes it. Here are some basic rules you should know to help you file an accurate tax return:

Taxed income. Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is taxable.
Some types of income are not taxable except under certain conditions, including:

Life insurance. Proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that you get that is more than the cost of the policy is taxable.

Qualified scholarship. In most cases, income from this type of scholarship is not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. On the other hand, amounts you use for room and board are taxable.

State income tax refund. If you got a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some types of income that are usually not taxable:

Gifts and inheritances
Child support payments
Welfare benefits
Damage awards for physical injury or sickness
Cash rebates from a dealer or manufacturer for an item you buy
Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income. You can get it on IRS.gov/forms anytime.

The best way to get your tax refund is by direct deposit. Here are five good reasons to join the 84 million taxpayers who chose direct deposit last year.

IRS Direct Deposit:

1. Is Fast. The fastest way to get your refund is to electronically file your federal tax return and use direct deposit. Use IRS Free File to prepare and e-file your federal return for free.

2. Is Convenient. With direct deposit, your refund goes directly into your bank account. You won’t have to wait for your check to come in the mail. There’s no need to make a trip to the bank to deposit a check.

3. Is Secure. Since your refund goes directly into your account, there’s no risk of having your refund check stolen or lost in the mail.

4. Is Easy. Choosing direct deposit is easy. When you e-file, you can follow the instructions in the tax software. If you file a paper return, just follow your tax form instructions. Make sure that you enter the correct bank account and routing number.

5. Has Options. You can split your refund into several financial accounts. These include checking, savings and certain retirement, health and education accounts. Use IRS Form 8888, Allocation of Refund (Including Savings Bond Purchases), to split your refund between up to three accounts. Don’t use Form 8888 to designate part of your refund to pay your tax preparer.

You should deposit your refund directly into accounts in your own name, your spouse’s name or both. Don’t deposit it in accounts owned by others. Some banks require both spouses’ names on the account to deposit a tax refund from a joint return. Check with your bank for their direct deposit requirements.

The IRS has set new limits that allow for no more than three electronic direct deposit refunds into a single financial account or pre-paid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund.

Helpful tips about direct deposit and the split refund option are available in Publication 17, Your Federal Income Tax. You can view, download and print tax products on IRS.gov/forms anytime.

Did you change your name last year? If you did, it can affect your taxes. All the names on your tax return must match Social Security Administration records. A name mismatch can delay your refund. Here’s what you should know if you changed your name:

• Report Name Changes. Did you get married and are now using your new spouse’s last name or hyphenated your last name? Did you divorce and go back to using your former last name? In either case, you should notify the SSA of your name change. That way, your new name on your IRS records will match up with your SSA records.

• Dependent Name Change. Notify the SSA if your dependent had a name change. For example, this could apply if you adopted a child and the child’s last name changed.

If you adopted a child who does not have a SSN, you may use an Adoption Taxpayer Identification Number on your tax return. An ATIN is a temporary number. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. You can visit IRS.gov to view, download, print or order the form at any time.

• Get a New Card. File Form SS-5, Application for a Social Security Card, to notify SSA of your name change. You can get the form on SSA.gov or call 800-772-1213 to order it. Your new card will show your new name with the same SSN you had before.

• Report Changes in Circumstances in 2015. If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, be sure to report changes in circumstances, such as a name change, a new address and a change in your income or family size to your Marketplace throughout the year. Reporting changes will help make sure that you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance