8 Tips to Save Money On Your Tax Debt

axpayers can owe money to the IRS for many reasons. They may have difficulty paying taxes when due, receive bills from the IRS for amounts not owed, or owe interest and penalties on amounts paid late. Here are some smart ways to deal with the IRS when you owe money...

Tip #1: Avoid incurring the late-filing penalty by obtaining an extension to file your return.

Obtaining an extension does not permit you to pay taxes late. You must pay the tax you owe with the extension to avoid interest and late payment penalties. The late-filing penalty is 5% of the tax due, per month, with a maximum penalty of 25%. For late payment, the penalty is 0.5% of the tax due and not paid by the due date, per month, with a maximum of 25%, plus interest. (The current IRS rate is 7%.)

Tip #2: Stop penalties running on a late-filed return by delivering it to a local IRS office.

Always obtain a receipt for the return. Returns filed on time are deemed filed when they are mailed or when delivered to an authorized carrier, such as FedEx. However, returns filed late are deemed filed when they are received by the IRS. So, deliver a late return in person.

Tip #3: If you cannot pay the tax due with a return, attach Form 9465, Installment Agreement Request.

Responses to such requests are based on the amount of tax you owe. As long as you do not default, the IRS does not report an installment agreement, so your credit rating will not be affected. How it works...

The IRS will accept all requests for installment payments over a period of no more than 60 months if you owe less than $10,000.

If you owe more than $10,000, the IRS does not have to accept the proposed installment arrangement.

If you owe more than $25,000, you must also prepare and file Form 433-F, Collection Information Statement, which includes substantial financial information.

To request an installment payment for amounts due from an IRS notice, file Form 9465 separately from your return. If granted, the IRS charges $105 for all installment agreements ($52 if your payments are made by electronic funds withdrawal), or $43 if your income is below a certain level. Various criteria determine this level. To see if you qualify, fill out Form 13844, Application for Reduced User Fee for Installment Agreements. Of course, the IRS charges interest on the unpaid amounts.

Tip #4: Use IRS payment plans if you need to make your payments over more than 60 months, or to create an online payment agreement or a payroll deduction installment agreement.

Unlike the installment agreement, a payment plan is not automatic -- the IRS has to agree to it. To qualify, call the IRS at 800-829-1040, or visit the IRS Web site, www.irs.gov, and use the pull-down menu under "I need to... " and select "Set up a payment plan."

Tip #5: Apply for an "offer in compromise" to settle past-due taxes for less than the full amount due.

Make the application on IRS Form 656, Offer in Compromise. The IRS accepts offers in compromise if it is unlikely that the tax due will be collected in full and the offer represents a reasonable way to settle the matter. The decision is based on the tax­payer’s resources.

Caution: This is a lengthy process that requires significant documentation. Filing for an offer in compromise doesn’t affect your credit rating. But, most people who file for one already have IRS liens filed against them, which does affect their rating.

Tip #6: Escape IRS penalties by demonstrating "reasonable cause" for late tax filing.

Abatements for multiple years’ late filings are more difficult to obtain, but not necessarily impossible.

How to do it: Use an experienced tax professional to assist you in applying for the penalty abatement. A pro will know which reasons -- such as an illness, a death in the family, unavoidably lost papers -- are more apt to be accepted, and which, such as you’re too busy at work, are automatically rejected.

Tip #7: Taxpayers who missed the deadline to file because they lacked necessary information, but who know they owe money, can make "legitimate and reasonable" estimates of the missing income and expense amounts to minimize late-payment penalties.

This includes estimates of information on missing W-2, 1099, or K-1 forms. You can file an amended return within three years from the filing date of the return on which you estimated, to report the actual amounts.

Tip #8: Avoid the "trust fund liability trap" by making sure that you don’t appear to be a "responsible person" under this provision if you’re not.

Owners and "responsible" persons are personally liable for an organization’s unpaid withholding taxes. This is known as the Trust Fund Recovery Penalty. It applies to for-profit businesses as well as nonprofit groups. To hold you liable for these unpaid taxes, the IRS must find...

That you were responsible for making the missed tax payments and...

That you acted willfully in not ensuring that the taxes were paid.

Caution: The IRS can make liable for unpaid payroll taxes those employees who have no stock ownership in the company but who had the authority to sign the organization’s checks. Make sure you never are in a position to sign checks or direct where payments will be made.

Further Reading:

What Are My IRS Payment Options?

Let's Settle This: The Offer in Compromise

Behind on Payroll Taxes? Your the IRS' New Target

The IRS Wants YOU, Tax Preparers, to Help Fight Non-Complicance

WASHINGTON — IRS Commissioner Doug Shulman announced today that by the end of 2009, he will propose a comprehensive set of recommendations to help the Internal Revenue Service better leverage the tax return preparer community with the twin goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.

Some of the potential recommendations could focus on a new model for the regulation of tax return preparers; service and outreach for return preparers; education and training of return preparers; and enforcement related to return preparer misconduct. The Commissioner will submit recommendations to the Treasury Secretary and the President by the end of the year.

“Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified,” Shulman said. “At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system.”

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities — such as enrolled agents, lawyers and accountants — as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

“We plan to have a transparent and open dialogue about the issues,” Shulman said. “At this early and critical stage of the process, we need to hear from the broadest possible range of stakeholders.”

Later this year, the IRS plans to hold a number of open meetings in Washington and around the country with constituent groups.

More information, including schedules and agendas for public meetings, will be posted on the “Tax Professionals” page on this Web site and will be communicated to stakeholder groups.

IRS Letters: Open Them Before It's Too Late!

It’s a moment many taxpayers dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.

If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

• *Agree? If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
• *Disagree? If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.

Be sure to keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, What You Should Know about the IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Further Reading:

IRS Letters

What Happens AFTER I File My Taxes?

From the desk of the IRS...

Most taxpayers have already filed their federal tax returns but may still have questions. Here’s what you need to know about refund status, recordkeeping, mistakes, and what to do if you move.

Refund Information

You can go online to check the status of your 2008 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2008 tax return available because you will need to know the filing status, the first SSN shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

• Go to IRS.gov, and click on “Where’s My Refund.”
• Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
• Call 1-800-829-1954 during the hours shown in your form instructions.

What Records Should I Keep?

Good record keeping allows you to prepare a complete and accurate income tax return. You should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.

Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending filed returns or preparing future ones.

Change of Address

If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also notify the post office serving your former address, which will ensure your check makes it to your new address.

What If I Made a Mistake?

Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return. Here are five reasons to file an amended return:

1. You did not report some income,
2. You claimed deductions or credits you should not have claimed.
3. You did not claim deductions or credits you could have claimed.
4. You should have claimed a different filing status. Taxpayers who filed a joint return cannot choose to file separate returns for that year after the due date of the return. However, an executor may be able to make this change for a deceased spouse.
5. If you bought or are thinking of buying home, you may be able to file an amended return to claim the First Time Home Buyer Credit. Taxpayers who purchased a qualifying home can claim the Homebuyer Credit on the 2008 return without waiting until next year to claim it on their 2009 return.

Visit IRS.gov for more information and Frequently Asked Questions regarding refunds, record keeping, address changes and amended returns.

Will I Get Audited? Do These 5 Things and It's a Sure Thing!

By Barbara Weltman, Esq.

An IRS audit -- it's what taxpayers most dread as they prepare their returns and what 1.3 million of them faced last year -- up 5% from the year before.

As the White House and Congress look for more ways to shrink the federal budget deficit, your chances of being audited are likely to grow, especially if your income tops $100,000.

Although there are no foolproof methods to avoid an audit -- and many returns are chosen randomly -- there are certain red flags that draw the attention of IRS computers and auditors.

Here are mistakes that could cause your return to stand out and suggestions on how to avoid an audit...

Omitting or underreporting income. Employers and financial institutions sometimes report income incorrectly to taxpayers and the IRS on W-2 forms (for employees) and 1099 forms (for independent contractors).

Safest: If you receive an incorrect W-2 or 1099, don't just substitute a different figure on your tax return. Get the mistake corrected by the source, and ask for a new W-2 or 1099.

Failing to fill out an Alternative Minimum Tax (AMT) schedule. This year, more than 3.5 million individuals are expected to owe this tricky tax, which kicks in when deductions push the regular tax below a certain minimum amount. Taxpayers who live in "high tax" states, such as New York and New Jersey, are particularly vulnerable, because state and local income tax and sales tax are not deductible for AMT purposes

Safest: Use the IRS 2006 AMT assistant, an online calculator at www.irs.gov (put "AMT Assistant" in the search window), to determine whether the AMT applies to you.

Messing up the math or leaving blanks. IRS computers easily detect math errors and omissions.

Safest: Print out your calculations so that you can double-check them. Review all lines, as well as blanks, to make sure that you didn't leave out required information or put it in the wrong place. That includes the signature lines -- remember that both spouses must sign a joint return.

Better yet: File electronically. It cuts down on math errors -- E-filed returns have an accuracy rate of more than 99%, compared with 80% for paper returns, because the program checks the math.

Claiming too many deductions and/or credits. The IRS is on the lookout for excessive deductions and credits.

Example: In January, the IRS said that some taxpayers are asking for too much in refunds for certain taxes they paid in the past on long-distance phone bills. Those taxes have been ruled illegal, and the government is offering to refund to each taxpayer a "standard" phone tax amount of $30 to $60, depending on the number of exemptions claimed on the tax return, without requiring any proof. For higher amounts, proof of what was paid in phone taxes is required. IRS commissioner Mark W. Everson said that "people requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted."

If you request more than the standard phone tax refund, be sure to have on hand the phone bills that prove what you claim.

Safest: In general, don't claim deductions that far exceed what tax preparers say is reasonable for your income bracket, or if you do, attach an explanation. Attach copies of bills for unusually high medical expenses. Have proper documentation for donations to charity. For used clothing and household items, take pictures of the items to show that they were in good used condition or better.

Guidelines: There are no "standard" deduction amounts. Based on IRS statistics for 2004, taxpayers with adjusted gross incomes (AGIs) of $50,000 to $100,000 itemized an average of $2,663 in charitable contributions and $6,125 in medical costs. Those with AGIs of $100,000 to $200,000 itemized an average of $4,130 for charity and $9,811 for medical costs.

Claiming losses on hobbies. Deductions for a fun activity, such as coin collecting, may be rejected if the activity results in losses that don't make commercial sense year after year.

Safest: Don't claim deductions for hobby expenses unless you are prepared to show that you are engaged in the activity for profit.

B

Bottom Line/Personal interviewed Barbara Weltman, Esq., an attorney in Millwood, New York, author of J.K. Lasser's 1001 Deductions and Tax Breaks 2009 (Wiley). She is publisher of the free monthly online newsletter Big Ideas for Small Business. www.barbaraweltman.com.

What Are My IRS Payment Options?

From the desk of the IRS:

If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. There are also alternative payment options to consider:

• Additional Time to Pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. The IRS is sometimes able to allow a brief additional amount of time to pay in order to facilitate tax debt repayment. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.

• Installment Agreement You can apply for an IRS installment agreement using our Web-based OPA application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing.

• Pay by Credit Card or Debit Card You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card the service providers charge a flat fee of $3.95, do not add the convenience fee or flat fee to your tax payment.
  
  
  
  • Link2Gov Corporation:
    • To pay by debit or credit card: 888-PAY-1040 (888-729-1040), www.pay1040.com
  • Official Payments Corporation:
  • To pay by credit card: 800-2PAY-TAX (800-272-9829), www.officialpayments.com
  • To pay by debit card: 800-866-4PAY-TAX (866-472-9829), www.officialpayment.com/debit

For more information about filing and paying your taxes, visit the IRS Web site at IRS.gov and choose “1040 Central” or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).

Need a Filing Extension? Here's What to Do!

From the desk of the IRS:

If you can't meet the April filing deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.

Here is what you need to know about filing an extension:

1. An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.
2. If your return is completed but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and use the pull-down menu under “I need to …” and select “Set Up a Payment Plan.” If you are unable to make payments, call the IRS at 800-829-1040 to discuss your payment options.
3. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15, 2009, or make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868.
4. You can e-file an extension request using tax preparation software on your own computer or by going to a tax preparer that has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
5. You can use Free File Fillable Forms to file for an extension. You can access Free File Fillable Forms via the IRS Web site at IRS.gov.
6. If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers and must also have available the adjusted gross income from your 2008 federal income tax return to verify your identity. For information on these and other methods of payment, visit IRS.gov or call 800-TAX-1040 (800-829-1040).
7. To obtain a copy of Form 4868 or other forms and publications use E-file tax preparation software, download them from IRS.gov or visit your local IRS office. Forms and publications can be ordered by calling 800-TAX-Form (800-829-3676). However, telephone requests normally take 10 days to fill and may not arrive before the tax deadline of April 15.

Where's My Refund?

From the desk of the IRS:

Are you expecting a refund from the IRS this year? Here are the top ten things you should know about your refund.

1. Refund Options You have two options for receiving your individual federal income tax refund: a paper check or a direct deposit.
2. Separate Accounts You may use Form 8888, Direct Deposit of Refund to More Than One Account, to request that your refund be allocated by direct deposit among up to three separate accounts, such as checking or savings or retirement accounts.
3. Paper Return Processing Time If you file a complete and accurate paper tax return, your refund will usually be issued within six weeks from the received date.
4. Returns Filed Electronically If you filed electronically, your refund will normally be issued within three weeks after the acknowledgment date.
5. Check the Status Online The fastest and easiest way to find out about your current year refund is to go to the IRS.gov Web site and click on the “Where’s My Refund?” link available from the home page. You will need your Social Security number, filing status and the exact whole dollar amount of your refund to check the status online.
6. Check the Status By Phone Call the IRS Refund Hotline at 800-829–1954. When you call, you will need to provide your Social Security number, your filing status, and the exact whole dollar amount of the refund shown on your return.
7. Delayed Refund There are several reasons for delayed refunds. For things that may delay the processing of your return, refer to Tax Topic 303 on IRS.gov, which includes a Checklist of Common Errors When Preparing Your Tax Return.
8. Larger than Expected Refund If you receive a refund to which you are not entitled, or one for an amount that is more than you expected, do not cash the check until you receive a notice explaining the difference. Follow the instructions on the notice.
9. Smaller than Expected Refund If you receive a refund for a smaller amount than you expected, you may cash the check, and, if it is determined that you should have received more, you will later receive a check for the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks after receiving the refund, then call 800–829–1040.
10. Missing Refund The IRS will assist you in obtaining a replacement check for a refund check that is verified as lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check. For more information, visit IRS.gov or call 800-829-1040.

Will You Qualify for Currnetly Non Collectible Status?

For some, paying the IRS their back taxes is almost impossible. Not the, "No, I really don't want to give up my cable so I can pay the IRS" impossible, but truly hard. For whatever reason, their financial status just doesn't permit payments.

When you're in this situation Currently Non Collectible (CNC) status may be right for you. How do you know though?

The "means test" for bankruptcy is a "litmus" test to determine whether you qualify for CNC.

The "means test" is a calculation of bankruptcy that provides the minimal level of income that a household can generate in order to qualify for Chapter 7 Bankruptcy (i.e. liquidation of assets and debts). The Bureau of Labor Statistics (BLS) is used to determine this level of income allowed (based on number in family and the state you reside) to be able to qualify for Chapter 7.

Generally (and you have to verify with documentation), if a person qualifies for Chapter 7 under the BLS, then you would qualify for CNC (subject to documentation and inability to liquidate assets/full payment of liquid assets).

For example, if a 2-person household in NC has $40,000 in income, $52,355 would be the amount of income they would normally be allowed to have to file for Chap 7. Also, this is the maximum allowable living expenses that would correlate to a potential CNC.

See below for the chart.

State	One Earner	2 Person Families	3 Person Families	4 Person Families
Alabama	$36,870	$46,647	$53,093	$63,951
Alaska	$49,325	$71,550	$72,079	$91,754
Arizona	$43,397	$57,620	$62,002	$71,867
Arkansas	$33,623	$45,435	$48,909	$56,822
California	$49,182	$65,097	$70,684	$79,971
Colorado	$46,765	$65,668	$70,838	$78,905
Connecticut	$57,505	$70,827	$85,315	$103,408
Delaware	$46,187	$60,747	$77,174	$79,006
District of Columbia	$42,340	$72,724	$72,724	$72,724
Florida	$42,468	$53,939	$60,162	$71,124
Georgia	$40,760	$54,054	$61,959	$71,554
Hawaii	$52,784	$66,227	$73,187	$88,863
Idaho	$40,910	$51,946	$54,633	$66,939
Illinois	$47,355	$60,049	$68,730	$81,184
Indiana	$41,697	$53,169	$61,164	$70,518
Iowa	$41,381	$54,628	$63,888	$74,047
Kansas	$41,004	$56,146	$63,245	$74,626
Kentucky	$36,628	$45,474	$55,391	$65,520
Louisiana	$36,945	$46,741	$52,628	$66,634
Maine	$40,618	$52,065	$64,342	$69,714
Maryland	$55,543	$73,947	$84,952	$103,719
Massachusetts	$54,842	$66,437	$83,104	$100,280
Michigan	$44,703	$53,575	$63,339	$76,312
Minnesota	$47,592	$62,073	$75,603	$87,634
Mississippi	$32,348	$41,934	$46,470	$55,759
Missouri	$39,563	$51,612	$58,473	$70,363
Montana	$39,484	$52,796	$52,796	$65,175
Nebraska	$37,803	$53,453	$62,814	$72,179
Nevada	$48,194	$60,557	$65,783	$74,735
New Hampshire	$55,766	$65,751	$77,008	$93,186
New Jersey	$57,120	$69,853	$85,397	$103,034
New Mexico	$35,913	$48,708	$53,018	$56,009
New York	$46,523	$57,006	$67,991	$83,036
North Carolina	$38,478	$52,355	$57,301	$70,134
North Dakota	$38,226	$53,389	$67,644	$71,751
Ohio	$42,458	$52,922	$62,251	$74,234
Oklahoma	$38,244	$51,322	$54,494	$62,049
Oregon	$45,176	$56,317	$61,046	$72,735
Pennsylvania	$44,688	$53,011	$67,262	$78,780
Rhode Island	$46,466	$59,314	$72,809	$91,415
South Carolina	$38,728	$50,823	$54,834	$65,974
South Dakota	$35,533	$51,068	$58,135	$69,002
Tennessee	$37,702	$48,729	$55,190	$64,615
Texas	$38,545	$54,908	$57,053	$66,400
Utah	$48,832	$56,816	$63,796	$71,919
Vermont	$40,876	$58,480	$64,312	$75,938
Virginia	$49,689	$65,342	$73,191	$85,769
Washington	$50,656	$63,521	$69,577	$82,445
West Virginia	$38,706	$42,865	$50,997	$59,762
Wisconsin	$42,816	$57,657	$67,103	$77,760
Wyoming	$46,265	$60,442	$68,568	$80,405
Commonwealth or U.S. Territory	One Earner
		2 Person Families	3 Person Families	4 Person Families
Guam	$36,019	$43,066	$49,076	$59,389
Northern Mariana Islands	$24,187	$24,187	$28,141	$41,390
Puerto Rico	$20,715	$20,715	$23,631	$26,822
Virgin Islands	$28,577	$34,348	$36,621	$40,123

Further Reading:

What is Currently Non Collectible Status?

7 Things You Must Know When Selling Your Home

People who sell their home may be able to exclude the gain from their income. Here are seven things every homeowner should know if they sold, or plan to sell their house.

1. Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.
2. Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.
3. Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.
4. When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.
5. Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D.
6. Deducting a loss. You cannot deduct a loss from the sale of your home.
7. Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.
8. 
   

For more information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 523, Selling Your Home (PDF 194K)
• Schedule D, Capital Gains and Losses (PDF 136K)
• Tax Topic 701 — Sale of Your Home