76 responses

  1. Karen
    April 5, 2017

    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!

    Reply

    • Ginita Wall, CPA, CFP®
      April 5, 2017

      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.

      Reply

      • Heide Smith
        July 22, 2017

        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

        Reply

      • Ginita Wall, CPA, CFP®
        July 22, 2017

        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.

        Reply

      • Kenneth Weil
        January 4, 2018

        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?

        Reply

      • Ginita Wall, CPA, CFP®
        January 15, 2018

        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.

        Reply

  2. D
    June 21, 2017

    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

    Reply

    • Ginita Wall, CPA, CFP®
      June 21, 2017

      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.

      Reply

  3. Jolie
    August 30, 2017

    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?

    Reply

    • Ginita Wall, CPA, CFP®
      August 30, 2017

      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).

      Reply

      • Jolie
        August 31, 2017

        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?

        Reply

  4. Ginita Wall
    August 31, 2017

    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.

    Reply

  5. Linda Hunter
    September 18, 2017

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      September 25, 2017

      You’d pay tax on the sales price less the cost of sale and less the value at the time of his death if he was an owner or co-owner of the house as community property.

      Reply

      • David R. Cunningham
        November 15, 2017

        My wife passed 3.5 years ago I follow the above but was wondering how this works if I buy a new home.

        Reply

      • Ginita Wall, CPA, CFP®
        November 16, 2017

        When you sell your old home, the gain will be the difference between the sales price (net of cost of sale) and what the house was worth when she died. Since you are entitled to exclude up to $250,000 of gain on the sale of your home, so if your gain is less than that you won’t owe any tax.

        Reply

  6. ted
    September 19, 2017

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

    Reply

    • Ginita Wall, CPA, CFP®
      September 25, 2017
  7. Rudy Velasquez
    November 18, 2017

    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

    Reply

    • Ginita Wall, CPA, CFP®
      November 20, 2017

      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.

      Reply

      • Rudy
        December 17, 2017

        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.

        Reply

      • Ginita Wall, CPA, CFP®
        December 17, 2017

        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.

        Reply

  8. Rudy
    December 17, 2017

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      December 17, 2017

      It is my understanding that rental properties will not be subject to that same cap.

      Reply

  9. Angie
    December 21, 2017

    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?

    Reply

    • Ginita Wall, CPA, CFP®
      December 22, 2017

      The steo-up is by operation of Federal law, and it doesn’t matter in what state the property is located. I believe that a revocable trust is treated the same as outright ownership.

      Reply

  10. Sandra hoffmann
    January 8, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      January 15, 2018

      To determine the tax basis, you can ask a real estate appraiser to do an appraisal of the value at the date of your husband’s death.

      Reply

  11. Marta Kane
    January 21, 2018

    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.

    Reply

  12. Michelle
    January 30, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      January 30, 2018

      Generally there would be a stepped up basis to the value at the date of his death, since he owned the property with you as community propperty.

      Reply

  13. Alice Weiss
    February 13, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      February 18, 2018

      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.

      Reply

  14. Angela Moore
    February 26, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      February 26, 2018

      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.

      Reply

  15. Debbie
    March 12, 2018

    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?

    Reply

    • Ginita Wall, CPA, CFP®
      March 12, 2018

      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.

      Reply

  16. monica D
    March 13, 2018

    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?

    Reply

    • Ginita Wall, CPA, CFP®
      March 14, 2018

      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.

      Reply

      • monica l dickson
        March 20, 2018

        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?

        Reply

      • Ginita Wall, CPA, CFP®
        March 20, 2018

        If your gain is only $220K, then your $250K exclusion would reduce the taxable gain to zero. And you are correct, if you sell within two years of his death, then you can claim the $500K exclusion.

        Reply

  17. Linda Baine
    March 14, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      March 14, 2018

      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.

      Reply

  18. R. Anderson
    March 14, 2018

    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

    Reply

    • Ginita Wall, CPA, CFP®
      March 14, 2018

      This is a site that is geared toward women, but of course, widowers in the same circumstances can use the same information.

      Reply

  19. RG Reyes
    March 16, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      March 16, 2018

      Your tax basis probably received an increase basis to the value at the date of her death. Check with the estate attorney to be sure.

      Reply

  20. Lynn Bradley
    April 14, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      April 14, 2018

      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.

      Reply

  21. john
    April 16, 2018

    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

    Reply

    • Ginita Wall, CPA, CFP®
      April 16, 2018

      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.

      Reply

  22. CDickson
    April 20, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      April 21, 2018

      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.

      Reply

  23. Cindy Dickson
    April 22, 2018

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

    Reply

    • Ginita Wall, CPA, CFP®
      April 23, 2018

      It is my understanding that any property that is owned by the deceased will receive the step-up in tax basis to the value at the date of death, whether owned outright or in a revocable trust.

      Reply

  24. Charlie
    May 4, 2018

    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?

    Reply

    • Ginita Wall, CPA, CFP®
      May 4, 2018

      Use whatever method you believe will establish the value at the date of his death. If there were no documents filed showing that value, you may need to have an historical appraisal done.

      Reply

    • Margaret Slough
      May 15, 2018

      Can she ask her local realtor to do a CMA for the date of his death?

      Reply

      • Ginita Wall, CPA, CFP®
        May 21, 2018

        If you need to show proof of value to the IRS, they will likely not accept an estimate by a real estate agent, but would require an appraisal.

        Reply

  25. Margaret Slough
    May 15, 2018

    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”?

    Reply

    • Margaret Slough
      May 15, 2018

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

      Reply

    • Ginita Wall, CPA, CFP®
      May 21, 2018

      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.

      Reply

  26. Diane
    May 21, 2018

    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

    Reply

    • Ginita Wall, CPA, CFP®
      May 22, 2018

      IRC Sec 1014

      Reply

  27. Brian
    June 21, 2018

    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

    Reply

    • Ginita Wall, CPA, CFP®
      June 22, 2018

      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.

      Reply

  28. Angie
    July 1, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      July 7, 2018

      It doesn”t sound as though he owned the home on title, and so it likely wasn’t a part of his estate when he died and didn’t get a stepped up basis.

      Reply

  29. Ka
    July 6, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      July 7, 2018

      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.

      Reply

      • Ka
        July 10, 2018

        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?

        Reply

  30. Ginita Wall
    July 11, 2018

    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.

    Reply

    • Ka
      July 12, 2018

      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?

      Reply

      • Ginita Wall
        July 12, 2018

        You’ll need to see how it is characterized in the trust. Talk to your estate attorney to be sure.

        Reply

  31. Patti Crawford
    July 19, 2018

    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.

    Reply

    • Ginita Wall, CPA, CFP®
      July 19, 2018

      Have an appraiser do an appraisal as of the date of death. I’m not sure the term for that, maybe a retrospective appraisal.

      Reply

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