Home-Sale Profit Rules for Widows And Widowers
A sale by year-end could double the amount of profit that is tax-free.
One of the greatest tax breaks for homeowners -- in addition to the one that allows you to deduct property taxes and mortgage interest -- is the ability to claim tax-free profits on the sale of your principal residence. Individuals can take up to $250,000 of profit tax-free, and married couples filing jointly can get a cool half million when they sell a house that they lived in for at least two out of five years prior to the sale.
A recent change in the law provides a special rule for widows and widowers.
Previously, a surviving spouse could claim the full $500,000 exclusion only if the home was sold in the year that a joint return was filed, which generally is limited to the year the spouse dies. But now a surviving spouse may exclude up to $500,000 of profit from the sale of the principal residence if it occurs within two years of the spouse’s death.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For example, if your husband died in 2007 and you sell the house that the two of you shared by December 31, 2009, you will be able to exclude up to $500,000 of profits from taxes. If you wait until next year or later to sell the house, you will be able to exclude only half of that amount -- up to $250,000 in profits -- from taxes.
Whether rushing a sale by year-end would benefit you depends on a lot of things, particularly on how much profit you expect to reap. And remember this: If your late spouse jointly owned the house with you, at least half of the gain accumulated up to the time of his or her death became tax-free at that time. That increases your tax basis -- the amount from which gain or loss on a sale will be determined -- and thus reduces your profit on any sale.
A recent change in the law provides a special rule for widows and widowers.
Previously, a surviving spouse could claim the full $500,000 exclusion only if the home was sold in the year that a joint return was filed, which generally is limited to the year the spouse dies. But now a surviving spouse may exclude up to $500,000 of profit from the sale of the principal residence if it occurs within two years of the spouse’s death.
For example, if your husband died in 2007 and you sell the house that the two of you shared by December 31, 2009, you will be able to exclude up to $500,000 of profits from taxes. If you wait until next year or later to sell the house, you will be able to exclude only half of that amount -- up to $250,000 in profits -- from taxes.
Whether rushing a sale by year-end would benefit you depends on a lot of things, particularly on how much profit you expect to reap. And remember this: If your late spouse jointly owned the house with you, at least half of the gain accumulated up to the time of his or her death became tax-free at that time. That increases your tax basis -- the amount from which gain or loss on a sale will be determined -- and thus reduces your profit on any sale.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
A Guide to Music Streaming Services
Deals Our guide to music streaming services from Spotify to Amazon Music, Tidal to Apple Music and how to find music streaming deals.
By Vaishali Varu Published
-
Stock Market Today: Markets Reflect Global Uncertainty
Exuberance fades as investors confront micro challenges and a murkier macro environment.
By David Dittman Published
-
2025 Open Enrollment: DACA Recipients Can Purchase Affordable Care Act Health Insurance
Open Enrollment Over 100,000 people are newly eligible to purchase health insurance from the federal marketplace. Here's what you need to know.
By Gabriella Cruz-Martínez Published
-
New 2025 Child Tax Credit Announced: How Much Is It?
Family Tax Credits Explore the new IRS-adjusted amounts for popular family tax credits.
By Gabriella Cruz-Martínez Last updated
-
Landmark Lawsuit Targets Unfair NYC Property Taxes
Property Tax New York’s highest court just weighed in on the city’s embattled property tax code. Here's what it could mean for you.
By Gabriella Cruz-Martínez Last updated
-
IRS Solar Tax Credit Payouts Soar as Scams Target Homeowners
Clean Energy Clean energy tax credits are paying off for many, but experts warn of increasing scams.
By Kelley R. Taylor Last updated
-
The Mansion Tax: Do You Need to Worry About It?
Mansion Tax If you’re in the market for a high-value home, you may face an additional tax rolled into your closing costs.
By Gabriella Cruz-Martínez Last updated
-
Five December 31 Tax Deadlines for Retirees
The end of the year will be here before you know it, so it might be a good idea to start thinking soon about what you need to do for taxes before it arrives.
By Evan T. Beach, CFP®, AWMA® Published
-
IRS: How to Get a 401(k) Match for Your Student Loan Payment
Savings Those with 401(k), 403(b), and other savings plans might get relief through their employer-provided retirement account.
By Kate Schubel Published
-
How to Reduce Your Property Tax
Property Tax Homeowners cannot avoid property taxes, but there are strategies to potentially decrease your bill.
By Kelley R. Taylor Last updated