24 Feb My wife died. How will the sale of our home be taxed?
Q. My wife and I were married for almost 49 years until she passed in December of 2022. We’ve lived in the same house since 1979. If I decide to sell the house, do I receive the $500,000 exemption or only the $250,000 exemption because I am now single?
— Selling soon, I think
A. We’re sorry to hear of your wife’s recent death.
Here’s what you need to know about taxes and your home.
It seems you’re aware of the provision of the Internal Revenue Code where all individuals are entitled to claim a $250,000 gain exclusion upon sale of their principal residence if owned and used as the principal residence for a period of at least two out of the preceding five years, which increases to $500,000 if sold by a married joint filer.
Special rules exist for widowed taxpayers, said Neil Becourtney, a certified public accountant and tax director with Smolin, Lupin & Co. in Red Bank.
“If one has not remarried at the time of the sale, you can include any time your late spouse owned and lived in the home to meet the ownership and residence requirements,” he said. “More importantly the gain exclusion is $500,000 if you sell the home within two years of the death of your spouse and neither you nor your late spouse took the exclusion on another home sold less than two years before the date of the current home sale.”
This applies for federal as well as New Jersey purposes, he said.
You should also consider the calculation of the tax cost of the residence, Becourtney said.
“If you owned the residence jointly, then half the cost is based on the original purchase price plus closing costs upon purchase plus capital improvements less closing costs on sale whereas the other half of the cost gets a step-up in basis to the fair market value as of the date of death,” he said. “This won’t matter if your gain based on historical cost is below $500,000.”
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This story was originally published on Feb. 24, 2023.
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