29 Apr Do I owe taxes on condo sale after my husband died?

Q. I just sold my condo with a sizable profit. My husband and I co-owned. He passed away two years ago. Do I owe just my 50% of capital gains or do I owe 100% of capital gains? I do not want to invest in another rental property.
— Widow

A. We’re sorry to hear about the loss of your husband.

You said you don’t want to invest in another rental property.

So it’s important to clarify whether the condo was personal property or business property.

Personal property would be a primary residence where you lived or a vacation home that was not a rental property, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

“When a primary residence is sold married couples can exclude up to first $500,000 of gain while single individuals can exclude up to $250,000 as long as they meet a series of eligibility tests,” Maye said.

For more details on eligibility, see IRS publication 523.

Assuming the residence qualifies for the capital gain exclusion, surviving spouses can claim or exclude the $500,000 of home sale profits if they sell the house within two years of their spouse’s death, Maye said.

After two years, a surviving spouse would only be entitled to a $250,000 capital gain exclusion, assuming they qualified, Maye said.

But it sounds like this condo was a rental property, in which case you might not be entitled to any capital gain exclusion at all, he said.

“Also, if it was both rental and personal use property it would be considered a mixed use property,” he said. “With business property and mixed use, this can get tricky and a portion of the capital gain might be recaptured as ordinary income due to depreciation recapture rules.”

The best course of action would be to discuss your personal situation with your own tax advisor to make sure you take advantage of any tax breaks you might be entitled to.

Finally, Maye said, the capital gain may not be as large as you think.

“You might be entitled to a step up in fair market value at your husband’s date of death,” Maye said. “Discuss this with your tax advisor or estate attorney to make sure you take into account any step in basis on the condo you just sold.”

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This story was originally published on April 29, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.