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!


  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?

        • 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.
            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.

  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?

    • 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.

  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,


    • 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.

  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. 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. 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.


    • 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.

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