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Section 199A Deductions – Pass Thru Tax Breaks

One of the most talked about changes to the tax code under the Tax Cuts and Jobs Act of 2017 (TCJA) is the creation of a new code section, Section 199A also known as the Qualified Business Income (QBI) deduction. This section creates a significant tax break for taxpayer with pass through income subject to specific rules and limitations that we will address here.

What is the Qualified Business Income Deduction?

The QBI deduction is a deduction from adjusted gross income to arrive at taxable income. A taxpayer that generates "qualified business income" will be entitled to take a deduction of 20% of qualified business income on their tax return subject to some limitations. Before we get into those limitation let's define a few terms.

Important Terminology

C corporation - One of the four main entities to operate a business under. Owners of a "C corporation" are subject to double taxation. When income is earned by the corporation, it is first taxed at the business level, at a top tax rate of 35% under current law. Then, when the corporation distributes the income to the shareholder, the shareholder pays tax on the dividend, at a top rate of 23.8%.

S corporation -  Another one of the four main entities to operate a business under. In the case of an S corporation, the income of the business is allocated among the owners and then included on their individual returns. This offers a single level of taxation. The business owner pays tax on their share of the income at ordinary rates, which rise to as high as 39.6% under current law.

Partnership - Another one of the four main entities to operate a business under. Much like an S corporation, the income of the business is allocated among the owners and then included on their individual returns.

Sole proprietorship - A sole proprietor simply reports his or her income directly on Schedule C of their Form 1040. The business owner pays tax on the business income at ordinary rates, which rise to as high as 39.6% under current law along with an additional 15.3% self-employment tax on the net profit of the business.

Qualified business income (QBI) - QBI is defined in Section 199A(c) as the "ordinary" income, less ordinary deductions, you earn from a sole-proprietorship, S corporation, or partnership. QBI does not include, however, any wages you earn as an employee. This means you could have two people doing the exact same job, one as an independent contractor and one as an employee, with the self-employment income of the former being considered QBI (and thus eligible for a 20% deduction), while the wages earned by the latter would not be eligible for the 20% deduction. QBI does NOT include investment income such as, short-term capital gain or loss, long-term capital gain or loss, dividend income, and interest income.

Qualified business property - Is defined as any tangible property, subject to depreciation (meaning inventory doesn't count), which is held by the business at the end of the year and is used, at ANY point in the year, in the production of QBI.

Entity Tax Rates Under TCJA

The Tax Cuts and Jobs Act resulted in a reduction in the C corporation tax rate from 35% to 21%. This cut done in isolation would have reduced or even, in some cases,  eliminated the tax advantage that flow-through entities, such as S corporations, have over C corporations. In order to prevent this tax cut from tilting the field away from flow-through entities, Congress created a new code section, Section 199A, allowing owners of sole proprietorships, S corporations and partnerships to take a deduction of 20% against their income from the business. The result of such a provision is to reduce the effective top rate on these types of business income from 39.6% under current law to 29.6% under the new law (a new 37% top rate * a 20% deduction= 29.6%).

Now let's start tackling the specifics of this new code section.

Who Can Take the Deduction?

Section 199A(a) makes clear that the deduction is available to all taxpayers other than a corporation. This would include partnerships, sole proprietorships, S corporations and, thanks to a last minute addition, trusts and estates that own an interest in a flow-through business.

How Much is the Deduction?

Starting January 1, 2018, anyone who generates "qualified business income" will be entitled to take a deduction of 20% of that qualified business income on their tax return subject to certain limitations.

What Are the Limitations?

Here is the fun part. Stick with me here as we break this down into parts.

The deduction is equal to the SUM OF:

1.      The LESSER OF:

·         the "combined qualified business income" of the taxpayer, or

·         20% of the excess of taxable income over the sum of any net capital gain

  1. PLUS the LESSER OF:

·         20% of qualified cooperative dividends, or

·         taxable income less net capital gain.

Let's focus on that first bullet point since that is the part that will affect a majority of taxpayers. The first bullet point mentions "combined qualified business income". What is "combined qualified business income"? Combined qualified business income is actually not income, but rather a deduction. It is:

  1. THE SUM OF:

         The LESSER of:

·         20% of the taxpayer's "qualified business income" or

         The GREATER of:

·         50% of your allocable share of the W-2 wages with respect to the business, or

·         25% of your allocable share the W-2 wages with respect to the business plus 2.5% of your allocable share of the unadjusted basis immediately after acquisition of all "qualified business property." .

So what does this mean in plain english? It means the your allocable share of the wages and unadjusted basis in qualified property act as a cap on the amount of the deduction.

Here is a simple example: My brand new S corporation incurs $800,000 in profit. My S corporation has paid no wages and has no assets. What is my deduction? It is $160,000 ($800,000 * 20%), right? Not so fast. Let's remember our wage caps.

My deduction is the LESSER OF:

  1. $160,000 (20% of $800,000), or
  2. The GREATER OF:

1.      $0 (50% of W-2 wages), or

2.      $0 (25% of W-2 wages, plus 2.5% of the unadjusted basis of the business's assets).

So, in this example my deductions is $0.

Now, what if my S corporation had paid $100,000 in wages. My deduction would now be $50,000 (the $160,000 deduction is capped at the greater of 50% of wages or 25% of wages plus 2.5% % of the unadjusted basis of the business's assets).

What Does "Allocable Share" mean?

For a shareholder in an S corporation the allocable share of W-2 wages is easy to determine, Section 1366 and Section 1377 require that all items of an S corporation be allocated pro-rata, on a per-share/per-day basis.

Things get a bit more tricky for a partner in a partnership, however, because partnerships can "specially allocate" different items of income, gain, loss and deduction among its partners at different percentages. Section 199A(f)(1) tells us that a partner's share of a partnership's W-2 wages is, determined in the same manner as his share of the partnership's wage deduction. Thus, if you are own a 20% capital stake in a partnership, but under the terms of the agreement you are allocated 80% of any depreciation but only 30% of Schedule K-1, Line 1 ordinary income, then because you are being allocated 30% of the partnership's wage deduction via your Line 1 allocation, you are stuck being allocated only 30% of the partnership's W-2 wage expense for the purposes of these limitations.

Important Facts Concerning Qualified Business Property

There are a few important items to keep in mind while calculating your qualified business property.

  1. The basis taken into consideration is "unadjusted basis," meaning it is NOT reduced by any depreciation deductions. In fact, Section 199A(b)(2)(B)(ii) requires that you take into consideration the basis of the property "immediately after acquisition."
  2. Any asset that was fully depreciated prior to 2018, unless it was placed in service after 2008, will not count towards basis.
  3. Just as with W-2 wages, a shareholder or partner may only take into consideration for purposes of applying the limitation 2.5% his or her allocable share of the basis of the property. So if the total basis of S corporation property is $1,000,000 and you are a 20% shareholder, your basis limitation is $1,000,000 * 20% * 2.5% = $5,000.
  4. If you are a partner in a partnership, you must allocate your share of asset basis in the same manner in which you are allocated depreciation expense from the partnership. So go back to my earlier example where a partnership allocated W-2 wages, and the partner owned 20% of the capital of a partnership, was allocated 80% of depreciation, and only 30% of Schedule K-1, Line 1, ordinary income or loss. While that partner would be allocated 30% of the W-2 wages paid by the partnership, he or she would be allocated 80% of the unadjusted basis of the property, because that is the percentage of depreciation he is allocated.

Exception to W-2 Wage Limitations

The TCJA provides that if your TAXABLE INCOME for the year, not adjusted gross income, but TAXABLE INCOME, is less than the "threshold amount" for the year, then you can simply ignore the two W-2-based limitations. The "threshold amounts" for 2018 are $315,000 if you are married, and $157,500 for all other taxpayers. These amounts will be indexed for inflation starting in 2019. You would determine taxable income WITHOUT factoring in any potential 20% deduction that we're discussing here.

For example, John has QBI of $200,000 from an S corporation that paid a total of $30,000 of W-2 wages and that has no qualified property. John's spouse has $50,000 of W-2 income, and the two have interest income of $20,000. Thus, total taxable income is $270,000. 

Normally, John's deduction would be limited to $15,000,  the LESSER OF: 

  1. 20% of QBI of $200,000, or $40,000, or
  2. The GREATER OF:

1.      50% of W-2 wages of $30,000, or $15,000, or

2.      25% of $30,000 plus 2.5% of $0, or $7,500.

While normally, John's deduction would be limited to $15,000, because John's taxable income is $270,000 (less than the $315,000 threshold) the two limitations are disregarded, and John simply takes a deduction equal to 20% of QBI, or $40,000.

Phase-In of W-2 Limitations

The taxable income thresholds for the W-2 wage exceptions are not a cliff. Going over the taxable income threshold by one dollar won't instantly result in the total phase in of the W-2 limitations. Rather, the W-2 limitations will be "phased in" over the next $100,000 of taxable income if you're married filing jointly, or $50,000 for everyone else.

This is a complicated multi-step process that I won't go into here because I don't want to type another 2,000 words. Just be aware that if you go over the taxable income thresholds you may still be entitled to a partial deduction even if you do not meet the W-2 wage rules.

Treatment of "Specified Service Trades or Businesses" 

NOT ALL BUSINESSES ARE ELIGIBLE FOR THE 20% DEDUCTION. This is likely to become one of the more impactful aspects of TCJA. Section 199A(d)(1) makes clear that there are two "trades or businesses" that are not eligible for the 20% of QBI deduction:

  1. Anyone who is in the business of being an employee, and
  2. Any "specified service trade or business." 

The TCJA references Section 1202(e)(3)(A) to identify a "specified trade or business", which includes the following:

"any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees."

However, Section 199A does provide a carve out for some businesses in Section 1202(e)(3)(A). Those types of businesses which are disqualified under Section 1202 but NOT under Section 199A, include: banking, insurance, financing, leasing, farming, any business giving rise to depletion, any business of operating a hotel, motel, or restaurant.

Whether a business is a "specified service business" is going to be critical under the new law. The problem is that although Section 1202 was enacted in 1993, we have almost no available guidance from regulations, administrative rulings, or judicial precedent to help us determine what is and isn't a "service business" for purposes of Section 1202. It may take the IRS years to provide final regulations addressing these issues.

Exception to Specified Service Trades or Businesses

Even if you're in one of those prohibited "specified service businesses," you can still claim the 20% deduction, provided your taxable income is less than $315,000 (if you're married filing jointly, $157,500 for all other taxpayers). These are the same thresholds as the ones used for the W-2 limitations.

Phase-In rules for Specified Service Trades or Businesses

Just like the phase in rules for the wage limitations, the "specified service business" rule is "phased in" over the next $100,000 of taxable income if you're married filing jointly, or $50,000 for everyone else.

Again, I won't go into the math here but just be aware that if you go over the taxable income thresholds you may still be entitled to a partial deduction even if are in a specified service business.

Important Miscellaneous Issues

·         The 20% deduction does not reduce a taxpayer's self employment income.

·         If your sole proprietorship, S corporation, or partnership generates a loss there would obviously be no 20% deduction, since there's no income, and then that loss carries over to Year 2 and reduces Year 2 QBI solely for purposes of computing the 20% of QBI deduction. To illustrate:

John owns 50% of an S corporation. In 2018, the S corporation allocates a $100,000 loss to John. Because John materially participates in the S corporation, he is able to use the $100,000 loss in full to offset his other income. 

In 2019, the S corporation allocates $200,000 of income to John. While John would generally start the process of determining his Section 199A deduction by taking 20% of $200,000, Section 199A(b)(6) provides that in determining A's QBI deduction for 2019, the $200,000 of income must be reduced by the $100,000 of loss from 2018. Thus, while John will still include the full $200,000 of S corporation income in his taxable income in 2019, his deduction will be limited to $20,000 (20% * $100,000) rather than $40,000 (20% * $200,000). 

·         The Section 199A deduction does not add to your NOL.

·         QBI also doesn't include any income that's not "effectively connected with the conduct of a U.S. trade or business". This is an issue we are waiting on further guidance on from the IRS.

·         We do not currently know if a single rental property that a taxpayer owns and reports Schedule E is entitled to a 20% deduction against the income. It appears, the 20% deduction is intended to apply to rental income, because a last-minute change to include the 2.5% limitation on unadjusted property. However, Section 199A(c)(c) requires only that QBI be earned in a "qualified trade or business," and the term "trade or business" is not well defined by the tax law. In fact, there are a number of different interpretations of what constitutes a trade or business for different purposes of the Code. The highest standard, however, is that of a "Section 162" trade or business, and in order for an activity to achieve this standard, the business must be regular, continuous, and substantial. And if that's the case, some rental activities will NOT rise to the level of a Section 162 trade or business, as is currently the case under the law, precluding owners of the activities from claiming the 20% deduction. Right now all we can do is wait for guidance from the IRS.

Remington O'Dell
Key Changes Due to the Tax Cuts and Jobs Act

Personal and dependent exemptions are eliminated

In the past, taxpayers could claim a personal exemption for themselves, their spouse (if married filing jointly) and each qualifying child or qualifying relative. Each exemption reduced taxable income by $4,050 in 2017. Under the Tax Cuts and Jobs Act (TCJA), personal and dependent exemptions are eliminated from 2018 through 2025.

In 2026, taxpayers can claim personal and dependent exemptions again.

Child tax credit increased through 2025

Through 2025, the TCJA increases the maximum child tax credit from $1,000 to $2,000 per qualifying child. The refundable portion of the credit increases from $1,000 to $1,400. That means taxpayers who don’t owe tax can still claim a credit of up to $1,400. The higher child tax credit will be available for qualifying children under age 17, as under current law.

The child tax credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) of over $200,000 or $400,000 (MFJ). This new phaseout more than doubles the phaseout range under current law.

In 2026, the child tax credit will change to the rules used in 2017, with a maximum credit of $1,000 per qualifying child, and lower phaseouts.

New credit for non-child dependents available through 2025

The TCJA allows a new $500 nonrefundable credit for dependents who do not qualify for the child tax credit. Taxpayers can claim this credit for children who are too old for the child tax credit, as well as for non-child dependents.

In 2026, the credit for non-child dependents will no longer be available.

Standard deduction increases through 2025

The standard deduction will increase. In 2018, the standard deduction amounts will be:

  • $12,000 (single)
  • $18,000 (head of household)
  • $24,000 (married filing jointly)

Due to the increase in the standard deduction, and because of changes to the rules for itemized deductions, many taxpayers who previously itemized will now claim the standard deduction instead. 

Many itemized deductions eliminated, limited or modified

The TCJA has a large impact on itemized deductions, as several itemized deductions have been eliminated or modified.

     Fully eliminated

  • Miscellaneous itemized deductions subject to the 2-percent floor such as: Employee business expenses, Tax preparation fees, and Investment interest expenses
  • Personal casualty and theft losses (except for losses in federally declared disaster areas)

     Limited

  • State and local income taxes (SALT), state and local sales tax, and property taxes may be deducted but only up to a combined total limit of $10,000 ($5,000 if MFS)
  • Home mortgage interest has several modifications: Interest on a home equity loan is no longer deductible, Interest on a new home mortgage is limited to interest paid on a maximum of $750,000 ($375,000 if MFS) of a new mortgage taken out after December 14, 2017, and Taxpayers with a mortgage taken out before December 15, 2017 can continue to claim home mortgage interest on up to $1 million ($500,000 if MFS) going forward; the $1 million ($500,000 if MFS) limit continues to apply to a refinanced mortgage incurred before December 15, 2017.

     Modified

  • Charitable contributions: The deduction for charitable contributions is expanded so that taxpayers may contribute up to 60% of their adjusted gross income, rather than up to 50%.
  • Gambling losses remain deductible, but only to the extent of gambling winnings. The definition of losses from wagering transactions is modified.
  • Medical expenses remain deductible. For 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of AGI. In 2019, the threshold will increase to 10% of AGI.

The overall limit on itemized deductions (often called the Pease limit) is also eliminated..

Most of the changes to itemized deductions will remain in place through 2025. In 2026, itemized deductions will generally follow the rules in place before the TCJA.

Many “Above-the-line” deductions eliminated, limited or modified

As with itemized deductions, many “above-the-line” adjustments have also been eliminated or limited:

     Fully eliminated

  • Alimony deduction for payments made under orders executed after December 31, 2018. For new orders, the TCJA no longer allows payors to deduct alimony payments or require the recipient to report income for alimony received. (Payments under existing orders are grandfathered and may continue to be deducted by the payor and should be reported as income by the recipient.)
  • Tuition and fees deduction expired under previous law and was not renewed by the TCJA.
  • Domestic production activities deduction (DPAD)

     Mostly eliminated

  • Moving expenses are disallowed except for the expenses of active members of the military who relocate pursuant to military orders.

     Stays the same

  • Educator expense deduction. K-12 educators can deduct up to $250 per year for unreimbursed classroom supplies.
  • Student loan interest of up to $2,500 can be deducted by qualifying taxpayers for interest paid on student loans.
  • Health savings account (HSA) deduction
  • IRA deduction
  • Deductions for self-employed taxpayers such as SE tax, SE health insurance, and SE qualified retirement plan contributions.

Some education benefits remain the same, others modified

Taxpayers can continue to claim the American Opportunity Credit, a credit of up to $2,500 per year for the first four years of college education, and the lifetime learning credit, a credit of up to $2,000 per year for qualifying education expenses.

Taxpayers can continue to use savings bonds for education, educational assistance programs provided by employers, 529 plans and Coverdell education savings plans to save for college. Some scholarships and tuition waivers can continue to be treated as tax-free if certain conditions are met.

Taxpayers whose student loans are cancelled because death or total and permanent disability may be eligible to treat the cancellation of debt as tax-free.

Health care penalty eliminated

The penalty for failure to obtain health insurance coverage (the “individual mandate”) will be eliminated beginning in 2019. Taxpayers who did not have coverage in 2017 or 2018 will continue to owe a penalty for those years, unless they qualify for an exemption.

Self-employed taxpayers may claim a new deduction for qualified business income

Self-employed taxpayers can deduct up to 20% of qualified business income from a sole proprietorship, partnership, or S corporation. There are a few very important limitations placed on the deductions that we will go into in another post as this new code section is one of the more complicated aspects of TCJA.

Remington O'Dell
Six Tips For Gifts To Charity

If you're thinking about making a charitable donation this year and want to claim a tax deduction for your gifts, you must itemize your deductions. This is just one of several tax rules that you should know about before you give. Here's what else you need to know:

1. Qualified charities. You can only deduct gifts you give to qualified charities. Give us a call if you're not sure if the group you give to is a qualified organization.

2. Monetary donations. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn't have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts. You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don't pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014.

6. Special rules. Special rules apply if you give a car, boat or airplane to charity. For more information about this and other questions about charitable giving, please contact our office.

Remington O'Dell
Eight Tips for Taxpayers Who Owe Taxes

IRS Summertime Tax Tip 2013-14, August 2, 2013

While most taxpayers get a refund from the IRS when they file their taxes, some do not. The IRS offers several payment options for those who owe taxes.

Here are eight tips for those who owe federal taxes.

  1. Tax bill payments.  If you get a bill from the IRS this summer, you should pay it as soon as possible to save money. You can pay by check, money order, cashier’s check or cash. If you cannot pay it all, consider getting a loan to pay the bill in full. The interest rate for a loan may be less than the interest and penalties the IRS must charge by law.
  2. Electronic Funds Transfer.  It’s easy to pay your tax bill by electronic funds transfer. Just visit IRS.gov and use the Electronic Federal Tax Payment System. You may also use EFTPS to pay your taxes by phone at 800-555-4477.
  3. Credit or debit card payments.  You can also pay your tax bill with a credit or debit card. Even though the card company may charge an extra fee for a tax payment, the costs of using a credit or debit card may be less than the cost of an IRS payment plan. To pay by credit or debit card, contact one of the processing companies listed at IRS.gov.
  4. More time to pay.  You may qualify for a short-term agreement to pay your taxes. This may apply if you can fully pay your taxes in 120 days or less. You can request it through the Online Payment Agreement application at IRS.gov. You may also call the IRS at the number listed on the last notice you received. If you can’t find the notice, call 800-829-1040 for help. There is generally no set-up fee for a short-term agreement.
  5. Installment Agreement.  If you can’t pay in full at one time and can’t get a loan, you may want to apply for a monthly payment plan. If you owe $50,000 or less, you can apply using the IRSOnline Payment Agreement application. It’s quick and easy. If approved, IRS will notify you immediately. You can arrange to make your payments by direct debit. This type of payment plan helps avoid missed payments and may help avoid a tax lien that would damage your credit.

    Taxpayers may also apply using IRS Form 9465, Installment Agreement Request. If you owe more than $50,000, you must also complete Form 433F, Collection Information Statement. For approved payment plans the one-time user fee is $105 for standard and payroll deduction agreements. The direct debit agreement fee is $52. The fee is $43 if your income is below a certain level.

  6. Offer in Compromise.  The IRS Offer-in-Compromise program allows you to settle your tax debt for less than the full amount you owe. An OIC may be an option if you can't fully pay your taxes through an installment agreement or other payment alternative. The IRS may accept an OIC if the amount offered represents the most IRS can expect to collect within a reasonable time. Use theOIC Pre-Qualifier tool to see if you may be eligible before you apply. The tool will also direct you to other options if an OIC is not right for you.
  7. Fresh Start.  If you’re struggling to pay your taxes, the IRS Fresh Start initiative may help you. Fresh Start makes it easier for individual and small business taxpayers to pay back taxes and avoid tax liens.
  8. Check withholding. You may be able to avoid owing taxes in future years by increasing the taxes your employer withholds from your pay. To do this, file a revised Form W-4, Employee’s Withholding Allowance Certificate, with your employer. The IRS Withholding Calculator tool at IRS.gov can help you fill out a new W-4.

For more information about payment options or IRS's Fresh Start program, visit IRS.gov. Also, see Publications 594, The IRS Collection Process, and 966, Electronic Choices to Pay All Your Federal Taxes, for more information. Get publications and forms at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

 

Remington O'Dell
Ten Tax Tips for Individuals Selling Their Home

IRS Summertime Tax Tip 2013-24, August 26, 2013

If you’re selling your main home this summer or sometime this year, the IRS has some helpful tips for you. Even if you make a profit from the sale of your home, you may not have to report it as income.

Here are 10 tips from the IRS to keep in mind when selling your home.

  1. If you sell your home at a gain, you may be able to exclude part or all of the profit from your income. This rule generally applies if you’ve owned and used the property as your main home for at least two out of the five years before the date of sale.
  2. You normally can exclude up to $250,000 of the gain from your income ($500,000 on a joint return). This excluded gain is also not subject to the new Net Investment Income Tax, which is effective in 2013.
  3. If you can exclude all of the gain, you probably don’t need to report the sale of your home on your tax return.
  4. If you can’t exclude all of the gain, or you choose not to exclude it, you’ll need to report the sale of your home on your tax return. You’ll also have to report the sale if you received a Form 1099-S, Proceeds From Real Estate Transactions.
  5. Use IRS e-file to prepare and file your 2013 tax return next year. E-file software will do most of the work for you. If you prepare a paper return, use the worksheets in Publication 523, Selling Your Home, to figure the gain (or loss) on the sale. The booklet also will help you determine how much of the gain you can exclude.
  6. Generally, you can exclude a gain from the sale of only one main home per two-year period.
  7. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is usually the one you live in most of the time.
  8. Special rules may apply when you sell a home for which you received the first-time homebuyer credit. See Publication 523 for details.
  9. You cannot deduct a loss from the sale of your main home.
  10. When you sell your home and move, be sure to update your address with the IRS and the U.S. Postal Service. File Form 8822, Change of Address, to notify the IRS.

For more information on this topic, see Publication 523. It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remington O'Dell