Widows, Do You Have to Pay a Capital Gains Tax If You Sell Your House After the Death of Your Spouse?

Examining Money IssuesIf your husband has recently passed away, you may decide it’s time to sell your home. Maybe it holds too many sad memories, or it’s just too big for you to handle on your own, or you simply want to live closer to your children.

Whatever your reason, if your house has increased in value over the time that you’ve owned it, then you might worry that selling your house will set you up for a big tax bill from Uncle Sam, thanks to capital gains tax.

A Quick Review of Capital Gains

Whenever you sell an asset, such as a home, for more than you paid for it, the difference is the capital gain. So, let’s say that you purchased your home in 1992 for $300,000 and today that same home is worth $600,000. (Good job!) If you sold the home for $600,000, your capital gain would be $300,000.

It should come as no surprise to you that Uncle Sam wants to take his share of your newfound wealth. Depending on your current tax bracket, you could be asked to pay a capital gains tax of 0% – 20% on the capital gains from your home’s sale.

Before you start writing your congressperson in outrage, there are ways that you can avoid or at least dramatically lower your capital gains tax burden. Let’s look at four ways to save you some major money.

The Capital Gains Tax Exemption

The first and easiest way to lower your capital gains burden is to take advantage of the capital gains tax exemption. For singles, the current exemption is $250,000. That means that the tax won’t apply to the first $250,000 of your capital gains.

This is great news if your house hasn’t appreciated more than $250,000. However, many seniors have lived in their homes for decades, which means the property could have increased significantly in value since they first purchased the house.

Sticking with our original example, if you sold your home for $300,000 more than what you bought it for, you would face capital gains taxes on $50,000 ($300,000 – $250,000).

The capital gains tax exemption only applies if you:

  • Are selling your primary residence,
  • Have owned your home for at least two years,
  • Have lived in your home for two of the past five years

Exclude Home Improvements

The government lets you deduct money that you’ve invested into your home from your home’s sale price when you report capital gains. For example, let’s say that you spent $50,000 on a kitchen remodel in 2005 and then added a granny flat on the property for $75,000 in 2014. In total, you’ve spent $125,000 on major home improvements, which you can deduct from the sale price of your home.

Even though your home sold for $600,000, in essence, it really sold for $475,000 ($600,000 – $125,000). Now, the capital gain on your home is only $175,000 ($475,000 – $300,000), which is within the capital gains tax exclusion. In this scenario, you wouldn’t have to pay any capital gains on your property.

Low Income Tax Bracket

The percentage of the capital gains tax you will face when you sell your home will depend on your yearly income, including the capital gains. Here is how the taxes on income break out for single individuals in 2016. (These numbers will change from year to year):

  • $0 – $37,650 in yearly income = 0% capital gains
  • $37,650 – $415,050 in yearly income = 15% capital gains
  • $415,050+ in yearly income = 20% capital gains

As you can see here, as long as you keep your income below $37,650, including capital gains, you won’t have to worry about capital gains taxes at all. If you are earning $50,000 this year but are planning to retire next year, if you have taxable capital gains, it might be worth it to wait until next year to sell your home when you’ll be earning far less and part of your capital gains will be taxed at a lower rate, or not at all.

Step-Up Basis After the Death of a Spouse

As a recent widow, you have one more card to play to beat capital gains tax. In all likelihood, you and your husband owned your home jointly (both of your names were on the deed) or there was a built-in right-of-survivorship. What this means is that when your husband died, his half of the home went to you.

Something else happened during that transfer that most homeowners don’t realize. Your husband’s half of the home transferred to your ownership on a stepped-up basis. When he died, his portion of the house updated (or stepped up) to the current fair market value of the home.

In our example, you purchased your home with your husband for $300,000. Let’s say that on the day your husband died, your home was worth $550,000. When his half of the home transfers to you, it isn’t worth $150,000 (half of your original purchase price); rather it is worth $275,000 (half of the current fair market value of $550,000). When you sell your home next year for $600,000, the capital gain is NOT $300,000. It is $175,000. How did we come up with that number?

Your half of the house is still at its original tax basis of $150,000 (half of the original $300,000 purchase price), but your husband’s half of the house stepped up to $275,000 when he died (half of the house’s value on the day he died of $550,000). Add $150,000 to $275,000, and you get $425,000 as the tax basis of your home. Subtract $425,000 from the $600,000 sales price, and your capital gain on the sale is $175,000.

That’s a lot of math, but the point is that $175,000 is below the capital gains tax exemption, which means you won’t have to pay any capital gains tax!

Many widows do not know about this rule, and so they don’t report the stepped-up value from their husband’s portion of the house when they sell the house. Don’t make this mistake. It could mean the difference between paying a big capital gains tax on the sale of your house or paying nothing at all!

Want to learn even more ways to save as a widow? Our article library just for widows includes useful articles on topics like Tax Breaks for Widows and more!

Comments

  1. If a husband and wife own their home together for 45 years and the husband dies, I thought that the widow only has 2 years from the date of death to take advantage of the $250 tax free gain from the husband’s side of the transaction. A total of $500,000 in tax free gain. What happens if the property closes after the 2 year anniversary? Is there a penalty? How much time does the widow have to sell and close after the date of death? Thank you!

    • At the date of his death, the property gets a step-up in tax basis to the value at the date of his death. So when you sell, you’ll have to pay tax on the difference between what is sells for, net of the cost of sale, and the value at the date of his death. That is likely to be very little.

      • Heide Smith says:

        Can you address the question from Karen about the primary home selling more than 2 years after the death? Does one still get the 250k exemption?
        Thanks

        • I’m not sure what the question is. If someone dies, their property gets a stepped-up basis to the value at the date of their death, which means that when the property is sold, the only thing that is taxable is the increase over the value at the date of death, which likely is very little. A dead person cannot claim a $250,000 exclusion from capital gains.

          • Kenneth Weil says:

            I was told that the 2 years applies to the stepped-up component. For example after 2 years taxation on 300 verses 25.

            550(house value) – 250(capital gains exemption) – 275(stepped-up) = 25 to be taxed.
            OR
            if after 2 years the step-up goes away it is 550-250 = 300 taxable?

            Can you tell me which it is?

          • When someone dies, the real estate that is part of their estate receives a stepped up basis to the value upon their death. There is no 2-year rule.

          • I think they are referring to the rule that if you sell your home within two years of the death of your spouse, the maximum exclusion is $500,000, not $250,000.

          • Surviving spouses may exclude $500,000 of home-sale profits from taxes if they sell the house within two years of their spouse’s death, as long as they owned and lived in the house for two of the five years before the spouse died.

  2. What if the house is only in the wife’s name and the husband dies? They will be filing a final joint return this year. Does it make sense from a tax perspective to sell the house this year? Is there any tax benefit (can they claim $500k tax-free) or does she only get the $250k tax-free gain?
    Thanks

    • If was owned by him and was part of his estate, then it does gets a “stepped-up basis” to the value at the date of his death, which means that becomes their tax basis and the only gain reportable is any increase from that value. If not, then the tax basis is what they paid for it plus improvements, and the sales price minus cost of sale minus that tax basis is the reportable gain. If that gain is less than $250,000 exclusion, then it won’t matter if it is sold this year or some other time, since she can claim the $250,000 exclusion when she sells the home. If the gain is greater than $250,000, she can use his exclusion as well even though his name wasn’t on it, if he lived in it for 2 of the 5 years prior to sale, and they file a joint return for the year of sale. If she will need to use his exclusion as well as her own, then she should sell during this year, when they can fle a joint return.

      • Lynda Keebler says:

        What if the house was in joint ownership when the husband died and then a couple of years later she has ownership moved to her name alone for reasons of giving the home to family when she dies. But she decides to sell the home instead, does she still get the step-up as of the date her husband died?

  3. I wanted to see if I read all this correctly. Say a husband and wife bought a house for 25k, 50 years later the husband died and the house is worth 1.2 million and it is sold within 6 months of the husbands passing. With the stepped up value in account, does this mean the wife’s half of the house stays at 12k (half the purchase price)and the husbands half of the house rises to 600k (half of 1.2 mil) and the house sells at 1.2 mil, however the profit would be considered 1.2 mil – 612k (stepped up adjusted value) rather than 1.2 mil – 25k (original purchase price, and therefore put the capital gains around $588k. Then is she still eligible for the $500k deduction off the capital gains, making the adjusted total to $88k? Or because of the stepped up value, does she only get the individual deduction of $250k, making her capital gains $358k?

    • She would be able to claim a $500,000 gain exclusion since the home was sold within 2 years of his death. An unmarried surviving spouse is allowed to claim the larger $500,000 joint-filer gain exclusion for the sale of a principal residence that occurs within two years after the spouse’s death.

      Here’s one more wrinkle to the stepped-up basis rule. If the couple lived in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) and owned the home as community property at the time of his death, the tax basis of the entire asset is stepped up (not just the half that belonged to the deceased spouse).

      • Actually it was in California, so does that mean that the house’s value (in this case) was considered at the 1.2 mil market value that it sold at, and therefore there wouldn’t be considered any profit that any capital gains tax would be have to paid at all, and would definitely fall under the $500k exclusion if that was the case?

  4. Ginita Wall says:

    If it was titled in joint names as community property, that would be correct. If it was titled as tenants in common, then that would not be correct.

  5. Linda Hunter says:

    I am a widow recently retired this year in California. We bought our house in 1984 for 240,000, now worth about 1,500,000. Husband dies in 2011, I had appraised few months later for 840,000. Want to sell house within next few months. ( also still owe 500k on mortgage). What would I pay in capital gains, we were marrred 39 years.

  6. can the money owed on a reverse mortgage be deducted from the net capital gain?

  7. My wife and I bought our home in California for $1 Million in 2004. My wife passed in 2010 and the home was worth $800k because of the housing market crash. Today the house is worth 1.4M. I remain a widower and I still live in the home. I also refinanced the home in 2015 so I am the sole owner. If I sell today at 1.4M, what will I pay in capital gain taxes? Any advice on how to minimize my tax burden?
    Thank you,

    Rudy

    • You will pay tax on $1.4 million less the costs of sale and less $800,000 tax basis and less the $250,000 capital gain exclusion for sale of your principal residence.

      • Why is the tax basis $800k? I purchased the home for $1M and I made $100k improvements. Wouldn’t the basis be $1.1M? The 800k is an estimate of the market value when my wife passed but at no time was the property sold.

        • Under fair market value basis rules, a person inheriting property (an heir) receives a “basis” in inherited property equal to its date of death value.A step-down occurs if a decedent dies owning property that has declined in value.

  8. The tax reform legislation being discussed in Congress states that there will be a 10k cap on property/state income tax deduction. Does this property tax cap apply to investment property too or just the primary residence? I’m wondering if I will still be able to write off property taxes and mortgage interest deductions for my rental properties.
    Thanks.

  9. Gina, What if the property, located in CA, was in a revocable trust when the spouse passed. Is the property eligible for the step-up?

  10. Sandra hoffmann says:

    My husband and I owned a house in New Orleans, we bout it got 140k and put another 450k into it. He died in 2008. I ha e remarried and my new husband and I live here and file jointly. Will I be able to take the entire 500k exclusion and how do I find out Elat the stepped up price was in 2008. New Orleans has never reassessed.

  11. Marta Kane says:

    Thank you so much Ms. Wall for your informed advice. I am a widow of almost two years and must sell
    my house in California. A difficult time, at best, but after reading your article and the answers to your readers questions, I feel somewhat relieved about my financial situation. Again, thank you. Marta Kane.

  12. my husband own the property prior to us getting married. He and I refinanced the property years ago and my name was placed on the property. My husband passed away in 2013. I transferred the property into my name. What happens to the Step Up Basis in a case like this. I am a resident of California and the house is a rental property.

  13. Alice Weiss says:

    We bought the house in NY in 1986 for about 250k. We slowly remodeled the house over time for about 150k. My husband died 3 year ago but deed was only in my name. I’m thinking of selling the house, it may be worth 1.5mil. The house was worth about 1.2 mil at time of death. What is my cap gains situation. Thank you in advance for any help you can provide.

    • If he is determined to have had an interest in the house at the time of his death, according to state law, then that interest would get a stepped-up basis. If it is determined to be your property alone, then there is no increase in basis to the value at the date of his death.

  14. Angela Moore says:

    My parents purchased their home jointly in 1967 for $14,750 in the state of Virginia. My mother passed away in March of 2016 and the value of the home at that time was $400,000. My father wants to sell the home and has been given an appraisal of $425,000. How would I calculate the amount on which he would owe capital gains tax? Thank you in advance for your help.

    • Your mom’s half of the property got a tax basis step up to its value at the date of her death. The other half of the property, owned by your dad, likely remains at the same tax basis it had before (cost plus improvements). So half would have a basis of $200,000 and the other half would have a tax basis of $7,000+, a combined $207,000+. So the gain would be the sales price less the cost of sale and less $207,000+. If it was his home, then he probably qualifies for an additional $250,000 capital gain exclusion, so the gain wouldn’t be taxable.

  15. How does the appraisal cost of a house and lot effect the sale price of property that my husband and I bought 25 years ago but I am thinking of selling since his death in November?

    • The appraisal cost will not affect the sales price. It will sell for the price that you agree on with the buyer of the house. You likely won’t have any gain on the sale since I’m guessing that the house got an increase in tax basis to its value at the date of his death.

  16. monica D says:

    My husband and I purchased our house 30 years ago for 299K, he passed away in August of 2016. At the time of his death the house value was around 850K. The value now is around 1.1M and I owe 560K. I have also refinanced and now am the sole owner. So if the tax basis is 850K then what would my capital gains be based on? Would I get the $500K exclusion or $250K?

    • Your gain is the sales price less the cost of sale and less the $850,000 tax basis, which was likely increased to the value at the date of his death. You would be able to exclude $250,000 of the gain under IRC Sec 121.

      • monica l dickson says:

        I am selling the house within 2 years of his death so would I be able to take advantage of the “An unmarried surviving spouse is allowed to claim the larger $500,000 joint-filer gain exclusion for the sale of a principal residence that occurs within two years after the spouse’s death. Also 30K of improvements would increase the value to 880K, so 1.1M sale of house less the 880K = 220K less the cost of the sale, I would not have any capital gains. Is my understanding correct?

  17. Linda Baine says:

    we bought our house in 1971 for $16,700. Lived in it until the summer of 2013. My husband had cancer and had a disability teachers pension from the state of Md. He also received Social Security but not SS disability. He became wheel chair bound and we needed to move for his disability,,,no stairs , wide doorways etc. e took a Home Equity on our home to buy a rancher and spent 60k fixing it so handicapped accessible. Moved in new house in Nov.2013 even though it wasn’t finished, We kept the old house until we could sell it. It did not sell. So we had to keep it. We did not rent it. Too much for me to deal with. My husband passed in 2013 Dec, I have not been myself. I have had the house up for sale for almost 5 years but it would not sell due to the location or a six lane road. The state took most of our yard for thier but highway, Finally someone wants to but it. I need to get enough to pay off the home equity which is $150K. Offer is 300k. I am a widow. Inherited his half of the house in 2013 worth about 120k. I have not lived in the old house since 2013 November. We had to move because of his disability. I, afraid I won’t have enough profit after taxes to pay the home equity. Help! Please. Im not sleeping.

    • You have an offer of $300,000. If you accept that offer and sell it, there will be costs of sale deducted (title insurance, etc) and he home equity loan of $150,000 would be paid off, leaving you with the balance in cash. Your gain would be the sales price less the cost of sale and less the tax basis (your half cost $8,350 and his half was increased to tax basis of $120,000). You will not be eligible for the $250,000 exclusion since you did not live in the home for 2 of the 5 years prior to sale. You can have an accountant figure out the taxes that would be due under the federal and state laws, but it likely won’t be more than $30,000 in taxes. So you will have plenty of money after paying off the home equity loan with which to pay the taxes.

  18. R. Anderson says:

    I find all your questions and answers very interesting and informative. My question is: Does this information only apply to widows or are widowers included

  19. RG Reyes says:

    My wife & I have a revocable trust. She passed away in a tragic car accident January 16, 2017. On 09/08/2017, I then decided to sell rental property we jointly owned in the trust. The selling price was $616,000. We bought the rental property in 1972 for $45,000. I had the property appraised & it was worth $635,000 at the time of her death. What then is my cost basis? We both live California.

  20. Lynn Bradley says:

    My husband died unexpectedly last yr, leaving me with a large home and high property taxes but little income. If I establish a legal apartment in the mother -in -law unit (not legally rentable in my town) already in my basement, will renting out that legal apartment adversely affect my income taxes/capital gains if I end up selling my house in a few yrs? I live in Washington state. Thanks.

    • I believe that the portion of the home that is a rental will not be eligible for the $250,000 exclusion from capital gains when you sell it in a few years. But that may not be a problem if it doesn’t go up much between now and then. Talk to an accountant about your exact situation and get some advice on how to structure this to give you the income you need and not jettison your tax situation.

  21. I got married in 2014. My much younger wife died on our honeymoon from an aneurysm. We had not even been signers on each others bank accounts much less on our properties. She owned 2 rentals. I own a duplex outright and my single family primary residence. few questions:

    The 250k is that just for primary residence? What is the rates and such on rental property?

    What would be the basis on property not in my name but legally “mine” from being in her name since she has passed away?

    I have a duplex I bought 30 years ago that is paid off now. The purchase price was 89k, it is now worth 400k.

    I have made significant improvements thru the years. If I had a 3 year plan. Could I move Back into that rental duplex in a year. Live there 2 years and then NOT have to pay capital gains ? Then I could also negate my capital gain on my now primary residence because I would still have lived in it for 2 of the last 5 years?

    I know its a ton of questions! I have been so shattered after her death that these “smaller” matters have taken a backseat.

    John

    • What a difficult time you have been through! To answer your questions: There is a $250,000 capital gain exclusion when you sell your principal residence, and you can claim an exclusion not more often than every two years. If you have a rental and convert it to a residence by moving back in, a portion of the gain can be excludable measured by the period during which it was a residence since 2009 divided by the total time it was owned. When you sell a rental, the depreciation you have claimed over the years is recaptured and taxed at whatever tax bracket you are in, and the rest of the gain is taxed at capital gains rates (generally 15% to 20%, depending on how high your income is). If you inherit property, the property receives an increase in tax basis to the value at the date of death.

  22. My husband died Jan 2018. We purchased our home in 1987 for $145k and have done an $120k upgrade. Our home is worth $1.6m and I want to sell as he passed away in the home. Can you tell me what the capital gains will be. Thanks.

    • It is likely that the home received a stepped up tax basis to the value on the date of his death. If that is the case, and you sell it for a value similar to that at the date he died, there will not be any capital gains.

  23. Cindy Dickson says:

    Thank You for the stepup information. Does this apply even if the house was not in a trust? Thanks, Cindy

  24. Charlie says:

    My question is in regards to the step up valuation. A widow who has lost her husband 7 years ago has a stepped up basis for his portion at the time of his death/transfer. What valuation method do we use if there is no appraisal done at that time of death?

  25. Margaret Slough says:

    My husband passed 10 years ago. After about 3-4 years I moved out and turned it into a rental when the market crashed in an effort to keep it until the market recovered. I thought I’d move back in but I never did. I considered it my primary because I lived in it so long, never considering it “an investment”
    I did rent it out for about 5 years and did not live in it two of those five. I paid 182,950 originally, when he died in 07 the value was $350,000 and I sold it in 2017 for $415,000.
    91,475+174,000=$266,475 tax basis correct? So I’m over the $250k mark.
    415,000 – 266,475 = 148,525. The improvements I put into the house does not come into play at all with this equation. I probably put in improvements somewhere from 30-50k. What happens now?
    Does this above scenario apply to me even though I was a “landlord”?

    • Margaret Slough says:

      I saw the above remark on the duplex scenario. My situation doesn’t sound good.

    • It is likely that the property’s tax basis increased in whole or in part to the value at the date of your husband’s death. Any improvements you made since then increase the tax basis. Since it was a rental, the depreciation you claimed during those years will reduce the tax basis. Since it was a rental, you will not qualify for the $250,000 exclusion for gain on sale of your personal residence.

  26. This info on “step up basis” is very helpful as my mom will be selling her house soon and she is a widow. I have been going thru the IRS pub 523 to get an idea of what we would be in for filing her taxes next year. I have not seen anything on the step up basis and was wondering what IRS guideline this falls under?
    Thanks!
    Diane

  27. My mother and father lived in a house in oroville ca
    My father died in 2008 ay which time the house was worth 235,000
    3 months later our mother put the house into my brothers and my name
    She lived in the house until2018 when she also passed away
    We are selling the house for 235000
    What is our capital gains

    • It is very possible that the house got a stepped-up basis to the value at his death if it was held as community property. If that is the case, when you sell it for the same amount as it was worth at his death, there will be no taxable gain.

  28. I’ve been reading the thread about the step-up and capital gains taxes. I purchased my home in CA in 1997 in just my name. In 2010 my finance moved in and began contributing to the mortgage payments. We married in 2012 but I had the home in a trust and never changed the ownership to add his name. In 2015 he passed away. Even though his name was not on the title or the mortgage, I am wondering if the fact that the property is in CA and because he was contributing to the mortgage payment using our joint checking account – if I am able to use the step-up value when I sell the property.

  29. Both husband and wife lived in CA and owned a primary residence as “joint tenancy” and the title of the property was transferred to a REVOCABLE LIVING TRUST before one of the spouses passed away. When the first spouse passed away and the surviving spouse wants to sell the property, will the “step up basis” rule be different if the primary residence is owned as “joint tenancy” than as “community property”? i.e. the surviving spouse gets only half step-up basis if “joint tenancy” versus full step-up basis if “community property”?

    And what if the property is a rental property instead of a primary residence provided that the other factors remained the same? Thanks.

    • It is my understanding that joint tenancy is not recommended for married couples who own assets that can increase in value, such as a residence, because the surviving joint tenant will not receive a “step-up” in cost basis to fair market value at the date of death of the other joint tenant. Community property generally gets a step-up in value for the entire property.

      • Thanks. Do you mean even the surviving spouse who is the “joint tenant” will not receive the “step-up” in HALF of the cost basis to the fair market value at the date of death of the other joint tenant in a community property state like California?

  30. If held in joint tenancy, it is my understanding that it is deemed that half the home was owned by the spouse that died and is part of his estate. That part gets a stepped up basis to the value at the date of his death. The other half is deemed to be owned by the spouse that lived and is not included in the estate of the spouse who died. That half does not get a stepped up basis.

    • So even if the entire property is transferred to the couples’ JOINT REVOCABLE LIVING TRUST prior to the death of the first spouse, the spouse that lived only gets half of the stepped up basis from the deceased spouse?

  31. Patti Crawford says:

    If you didn’t have an appraisal done at the time of death, what’s the best way to get a valuation. Death was 7 years ago.

  32. How does this apply to children? My father in law passed away a few years ago (has 4kids)and his wife continued to live in the home (has 2 kids from different marriage) until she passed away 5 months ago. The house finally sold but the title company said the value increased between the date of his death and hers. My husband split the money with his other 3 siblings and her kids split their half. The title co is sending a 1099 but the difference is way less than the 250k amount mentioned. So do the children need to pay a capital gain? Do you still file the 1099 if not?

    • The person who inherited the house received a stepped up basis to the value at the date of your father in law’s death. If that person lived in the home for two of the five years prior to sale, then the first $250,000 of gain above the stepped up value is excluded from tax. If his wife inherited the property, upon her death the property received a stepped up basis to the value at the date of her death. If your husband and his siblings were the ones who inherited the home from their father (and his wife was simply given the rights to live there until her death) then they have a gain of the value less cost of sale less value at the date of their father’s death. It doesn’t sound like any of them lived there for the requisite time after they inherited it, so no $250,000 exclusion would apply.

  33. Hi Ginita, my godmother who is widow, wants to know how does improvements made impact stopped up basis. When husband died, house was valued at 400k. She has since made improvements. Do we add improvements to stepped up basis, and subtract sale price and 250kexemption to arrive at final amount?

  34. My husband passed away in 2011, i didn’t know step up till now. I didn’t do appraisal after his death. Could i still benefit for the step up plan ?

  35. Susan Cameron says:

    My husband bought a home with my son. My name was never put on deed so the home is my sons now because i husband passed away. Would they be able to do the step up basis if they sold it

  36. According to your instructions, I have calculated that my mom, a widow, would owe capital gains on $250K if she were to sell her home, which she is considering since she is extremely low income (she gets below $15,000 per year income from social security and nothing else.) How would the capital gains play out in CA? How much cash would she actually owe on the $250K taxable portion? If I understand correctly, the 0% for low income is only for federal portion, but aren’t there other local taxes in CA and would she get a greak on those as well? She is considering using prop 60/90 to trade down to a cheaper home so she can unlock some cash for aging emergencies, but if she loses a large portion of that to cap gains, she does not want to do it. I remember hearing that cap gains in CA can be somewhere between 30 – 40%. Thank you.

  37. Jennifer C Payne says:

    I am widowed since 2007. Sold our house of 30 years in 2013. Now because I have health reasons, must sell my home . It it in a trust, how much tax deductible do I get, 250,000?

  38. My husband passed away in 2017. A small house that he owned (solely) passed to me by beneficiary deed (Arizona) at that time. I sold the house in 2018. Stepped-up basis would easily cover the gain. What other factors do I need to consider concerning the taxation of this sale, if any?

    Thank you.

  39. Minda Soloria says:

    Hi, I was searching for my Dad on tax break on the capital gains when his house gets sold. My mother just passed in March 2018 and he wants to sell the house. I have the power of attorney on all his financial affairs and not sure what to do when the house sells. The house is on the market (on Maui, Hawaii) and there are possibilities that it will sell for 1.5M. He bought the land and built a compound which didn’t cost much back then. there is lots of equity in the house. Does your article on capital gain tax break apply to widowers too? I’m a little confused on how this works. What tax breaks can he claim ($250K, $500K or step-up)? Who can I contact for advice on tax breaks?

    Thank you, Minda

    • Your dad is lucky to have you to do this research for him in this time of grief. Surviving spouses may exclude $500,000 of home-sale profits from taxes if they sell the house within two years of their spouse’s death, as long as they owned and lived in the house for two of the five years before the spouse died. And if your mom was an owner of the house, her share gets a stepped up tax basis to the value upon her death, which should reduce any taxes owned significantly. Contact an accountant who knows the tax laws to get specific information on your dad’s situation.

  40. Hello. I’m a retired senior (low income). I bought a house in California with my husband in 1994 for $250k. We refinanced the house in 2001, and it was worth $450k at that time. I also added my daughter to the deed in 2001, but she moved out in 2005 and bought a house of her own. Her name remains on the deed. In 2015 my husband passed away. At the time of his passing our house was worth $700k. I’m looking to sell my house today and I want to know how much is my taxable capital gains. Today my house worth $800,000
    Thank you in advance.

  41. Thank you for your reply. So my daughter has to pay capital gain tax even if she doesn’t live in this house for many years?
    Thank you

  42. If your daughter owns the house and sells it, she may have taxes to pay because she sold an asset that she owned.

  43. Hi there,
    My parents purchased their home in a Family Trust for approximately $30k in California during the early 1970’s. My mom had a stroke in March of 2016 and we decided to take out a reverse mortgage on their home to help pay for additional home care. The house was appraised in October 2016 for $1M (as part of the reverse mortgage qualification process). Then my dad passed away unexpectedly in January 2017. We finally had to move my mom into an assisted living facility and are planning to sell the house soon. She doesn’t have any income and is living off of their savings and the reverse mortgage funds. Does my mom need to sell by January 2019 to qualify for the $500k tax exclusion? If she waits until after the two year mark, will she only be able to claim $250k exemption (for singles)? We are trying to figure out how quickly we need to sell. Would it be most sensible to sell the house before the two year anniversary of my father’s death? Thank you so much!

    • Your dad’s exclusion will go away two years from his dealth. However, your dad’s portion of the home received a stepped up basis to the value upon his death in 2017. If the property was held as community property when it was transferred into the trust, then your mom’s share may have received a stepped up basis at the same time. If so, then it is likely that there isn’t a lot of gain and the $250,000 gain exclusion she has available to her will be sufficient. Check with your tax consultant to be sure.

  44. Patti Drager says:

    My husband and I owned our house and 146 acres in Wisconsin with both our names on deed. He passed away suddenly in 2016. We bought the property for $73,000 and added a $45,000 house in 1990. In 2013, we had house and 78.5 acres appraised to refinance loan. It appraised at $416,000, without the remaining 67.5 acres. The value of remaining land is estimated at $184,000. I would like to move and property has been listed for 6 months at $594,500 but it hasn’t sold yet. Will I lose stepped up basis if I go ahead and move to SC? Can I rent out my Wisconsin home until it sells or does that impact stepped up basis? I cannot afford to move and pay capital gains taxes once the property does sell. Appreciate any help so I can make plans.

  45. Linda Turvy says:

    (Ohio) My father died 2/21/2018. House and land purchased in 1969 for $23,500. My mom sold their primary house for $176,000 in July 2018 but kept 190 acres of land valued approx. $600,000. Since she sold the house within 2 years, if she sells the remaining acreage this year or next year, can she combine the purchases to receive a joint capital gains exclusion?

    • The portion of the property owned by your dad received a stepped-up tax basis to the value at the date of his death, and so there is capital tax due only on the difference between the net sales price and that amount. In addition, there is a $250,000 capital gain exclusion available for the sale of the home (not the extra acreage).

  46. Situation: The primary residence property in CA was purchased by the wife before marriage. Early in the 18 year marriage the home was refinanced and the title was changed to both the husband and wife’s name. Six months before the husband’s death, the house was refinanced and the title was changed to the wife’s name only. Throughout the marriage, the mortgage was paid with commingled funds. Question: At the time of the husband’s death, does the stepped up value get applied to the home’s basis? If not, if the home is sold before the 2nd anniversary of the husband’s death, does both the wife’s 250K and the husband’s 250K deduction apply?

    • If the property was the separate property of the wife under California law, then there would be no step-up in tax basis upon his death. If it was community property, then both spouses’ 50% share would be stepped up in value. And if it is sold within two years of his death, each spouse can use the $250,000 exclusion on the sale.

      • HI,
        Question:
        My mother, who recently passed away June 2018, lived in her home in MA from 1963 until 2014, at that point she needed to be cared for and medical help which I moved her to FL to live with me her son. (My dad had passed away in 1985 and my older sister passed away in 1993) In 2009 she had added me to the deed on the house with her. So at that time her primary home a secondary home for me. Their was not any mortgage on the home after 1985.
        Before she died we had decided to sell the home since at 92 she was not going to move back. The home sold and closed in November 2018 for $300,000. I received in the mail the 1099-S which prompted my to review the capital gains options I may have?

        • Since you were on the title, you may be taxed on your share of the capital gains on sale. But talk to someone knowledgable about taxes and real estate in your area. If you were added to title just for ease of transacting business, it may be that she didn’t actually transfer ownership of any portion to you at that time.

  47. Delores White says:

    I have a home in CA that I’m planning on selling. My husband purchased the home 40 years ago as a single man. We married in 1988 and a few years later the house was refinanced the title was changed to both our names. My husband died in 2015 and I placed the home in a revocable trust in my name only. I’m now interested in selling the home since I reside in another state. I would like to use the proceeds from the sale of this home to pay off a rental property. Do I still get a step-up tax basis? What is the capital gain exclusion, if any? Thanks.

    • It sounds as though the home was in both names when he died. His half received a stepped up basis at the time of his death, and depending on how title was held, your half may have been stepped up also. Consult a tax person who is familiar with marital real estate to have them review the paperwork for you. You’ll be able to exclude $250,000 gain if you lived in it for two of the five years prior to sale.

  48. Jane Bertke says:

    My situation is a little different. My Mother-in-Law, an Ohio resident (not a community property state). was widowed in 2014. The house that she lived in was 100% in my Father-in-Law’s name. She continued to live there until 2016. However, unbeknownst to her, the deed on the house was never transferred to her personally (technically it is still sitting in my Father-In-Law’s estate). If she utilized this home for two years as a primary residence would she be able to exempt the gain on sale of the house? Or is she not allowed to do so because the house was technically owned by her departed husband’s estate for the period that she used it as her principal residence?

    • If she did not own the house, then taxes on the sale won’t apply to her, since she can’t sell what she doesn’t own. But if her husband died and left her the house, and they simply failed to transfer it into her name but she has it now, then I would think that she can claim the $250,000 exclusion. Check with a tax person and give them all the facts so they can advise you.

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