If 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!
I stumbled across this Article when searching for something to ease my worry about the IRS. My Mother recently received a letter from IRS stating she owes $296k in capital gain tax. Since the death of my father, my mom seems to have lost the will and capacity to manage her personal and financial affairs – so I filed her Taxes in 2021 and still do so. However there were errors in the TaxAct submission that I did not catch, so I have completed an amended 1040x with the following. My family is in Washington State (Community Property State). Parents bought their acreage and home in 1978 for $38k. Father died on June 26, 2020 (right after COVID began). In Oct 2020 the property Appraised at 496K. The property sold on June 1, 2021 for $585k with $45k in selling expenses. Per my understanding, I declared the $496k as the adjusted basis for Fair Market Value. I deducted the $45K in selling expenses and also deducted $250k Exclusion for the Primary Residence exception. Result is Zero -0- Capital Gain. Hope I am correct. I’m sure IRS will let us know in another year or so after they tack on some more interest on what we might possibly owe.
If your parents held the home as community property at the time of your dad’s death, then it gets a stepped up tax basis to the value at the date of his death, $496,000. If it hadn’t been community property, then only his half of the property would get the stepped up tax basis.
If the acreage was part of the home, and it was all sold together as the sale of a home, then it would be considered the sale of a primary residence and your mother’s capital gain exclusion under IRC Sec. 121 of up to $250,000 can be applied to reduce the gain, in this case, to zero. But if the acreage is commercial or farmland rather than an integral part of the home property, then the IRS could consider it to be business property and the gain not elegible to be offset by the capital gain exclusion available for the sale of primary residences.
My mother and father have been separated for over 26 years, but never divorced and I am their only child. They have not shared assets, finances, credit, etc. for that time. They have lived separately during that time as well. My mother owns her own homestead property in Pensacola, FL that my father was never part of the deed, and my father purchased a homestead property in Jacksonville, FL in 2018 that my mother was not part of the deed. My father passed away in January of 2023 and because he didn’t have a will, had basically no assets, and did leave behind credit card debt we went through probate process with myself as the personal representative. We got the credit card debt settled through probate. Now, because him and my mom were still legally married, she was deeded his property through probate in July 2023. We just sold the property (September 2023) and received about $64k from the equity payout after the existing mortgage was paid off. We are trying to understand the tax implications for my mom with this scenario. The property was worth about $285k when it was deeded to her, and we sold it for $275k. My assumption is because it was sold for less than the value on when she “inherited” it that there will be no capital gains tax on the earned equity of $64k? What is confusing us is that it was obviously not her homestead property, and she was not on his deed, BUT her and my father were still legally married.
I agree with your assumption. He owned it at the time of his death, so it got a stepped up basis to that value. She inherited it, and that stepped up tax basis, and so when she sold it for less that that stepped-up basis, she did not experience any taxable gain. I don’t believe she can claim the loss, since it had been his home and she sold it soon after receipt, so it wasn’t used as an investment by her. But she might check with a tax professional to get their take on that.
Hi, my husband bought a piece ofproperty in NY in1972 for about $40000, then he added my name to his deed in 1997 , he passed away in 2011 and now I am selling the property for $241000 . How does step up situation works now.
Thanks
In 2011, his share of the property received a step-up in tax basis to the value at the date of his death. Your share of the property retained its tax basis based on original cost of the property plus the cost of any improvements. The selling cost and the tax basis will be deducted from the sales price to determine the taxable gain.
Thanks , also can I deduct propert taxes I paid during this time since 2011. I never claimed it on my tax form. Thanks
Property taxes paid do not add to tax basis and so aren’t deductible in computing taxable gain from sale.
Hello again,looking back at paper work , after my husband added my name to ownership of propert in 1997 , we put the property under the name of trust in 1999 before my husband passing in 2011 , and then family trust was resolved in 2016 and went to my name . now we are selling the property ( bare land) , how does step up tax gain works with this scenario. I really appreciate your advise .
Putting the property in the name of a family trust has no impact on the stepped up tax basis, so it works just as outlined before.
Can the stepped up basis be combined with the $500K couples exemption if sold within 2 years of death of spouse? Example, purchase price $1,000,000, value at death and at sale $2,000,000.
Stepped up basis $1,500,000. With $500,000 couples exemption = $0 gain. Yes? No?
Yes, If the home was owned by both spouses in a non-community property state then the deceased spouse’s half would get a stepped up basis to the value at date of death ($1 million) and the remaining spouse would have the original tax basis of $500,000, which is $1.5 million as you state. If the home is sold within two years of the death, then the surviving spouse can claim the $250,000 exclusion x 2 = $500,000, as you state. That will exclude all gains from taxation under federal tax law.
My mother – Owns a home with $70,000 basis purchased in 1979 (Dad died in 2007)
In 2012, I move into house to take care of my mother. She re-deeded the home – where the daughter and her own it 50/50 as Joint tenants with rights of survivorship. In 2020 she died and the value of the home is about $550,000. I make around 22,000 a year including my social security. If I want to sell this home for around $525,000. How much capital gain would I have to pay? Home and myself live in Florida. I do not have receipts for home improvements until after 2012. I know they put in a pool and had pavers put in, new air conditioner and roof but no receipts
You’ll need to check with your accountant to get the exact information you are seeking. You stepped into your mom’s shoes for tax basis when she gifted you the property. That would be 1/2 of the tax basis for the half of the home she owned, 1/2 of the estimated cost of improvements up to the date of your dad’s death, and 1/2 of the value at your dad’s death for the half of the home that he owned (or maybe it was entirely owned by one or the other of them, your narrative doesn’t say).
You also can include half of the cost of the improvements after she gifted your half to you and claim 1/2 of those costs. As for the half that was owned by your mom at the time of her death, that would be half of the value at that time (half of $550,000 according to your narrative.)
So, putting it all together, take the sales price of around $525,000, subtract the cost of sale, subtract everything listed above, and you have your gain. Most of it will be taxed at 15% capital gains tax rate, though a small amount will be taxed at zero. I’m guessing the gain may be around $100,000 or so, and so the federal tax on that would be around $15,000.
Question on the calculation, here is the scenario for my inlaws.
Bought home in 1960’s for $60,000. Over the years have put at least $200k of home improvements into the house.
Mother in Law passed in Nov 2022 and house value per zillow, etc. Is approximately $1.25 million.
The plan is to sell property within next 6 months. How will the calculation work based on this info? Thank you
If the sales price less the cost of sale exceeds the value at the date of her death, you will owe tax on that excess.
Pingback: Widows Make Sure You Receive Your Step up in Basis. - Jones Elder Law
Hello Ginita,
I live in Florida. My husband passed away December 2022. I am considering renting out the house and moving to be closer to one of my children. Will I lose the capital gains tax exception for renting out the house?
To claim the $250,000 capital gains exclusion, the home must have been your principal residence for 2 of the 5 years prior to sale. So if you sell it within 3 years of moving out, you can claim the capital gain exclusion. To also claim your husband’s exclusion you’d need to sell it within 2 years of his death.
Thank you for your article. I have a follow-up question. My wife died 3 months ago and I plan to keep living in our house. The house has probably appreciate a lot over these 30 years so if I’ll sell it in a few years time I’ll need to use the step-up basis for her half (joint ownership, Ohio) to considerably reduce the capital gains. But for that I will need to document to IRS’s satisfaction a FMV at the date of her death. How do I do it? We recently changed insurance and they had an inspection: would the insurance value (above 1 million) be accepted as FMV? Or should I hire ASAP a real estate appraisal? And which kind of appraisals (there are various categories) would be most likely to be accepted?
Thanks
You do not need to submit an appraisal to the IRS. But if they audit you in the future, which is highly unlikely, and they question the amount you claim is the stepped-up basis, you will need some reasonable basis for the value that you used. There are a couple low cost/no cost options you have, and you likely should document both of them: (1)Immediately go on Zillow and Redfin and do a screen shot of the value that they show for the property; and (2) Ask a realtor to give you a written estimate of what they would be able to sell the house for. Hopefully all of these will be in a reasonable range, and you’ll probably want to use the highest value. I’m guessing the insurance valued just the cost of rebuilding the house, since the lot won’t burn down, so that likely isn’t a good value to use. If, in the unlikely event that you are audited in the future and the even more unlikely event that the IRS rejects the documentation you have provided, at that time you can ask an appraiser to do a retrospective appraisal of the property. But I wouldn’t go to the expense of getting an appraisal now, since you likely will never need it.
I think it’s noteworthy that capital gains are often a non-issue on primary residences. Ginita, can you shed more light on that in this scenario?
The capital gain is computed by subtracting the tax basis (cost plus improvements, or stepped-up value if owned by a decedent at the time of their death) from the sales price. If the property was the principal residence of the seller for 2 of the 5 years prior to sale, then they can exclude up to $250,000 of gain on the sale of the property on their federal income tax return. If the capital gain doesn’t exceed that amount, then no portion of the capital gain is taxable for federal tax purposes, though it may still be taxable under state law.
My husband bought the land 2 parcels 50,000 each years ago. He didnt have my name on the property but willed it to me and in the trust given to me. He died.. in Oct 2022 and I got the property a house on one and land with bldg and electric on the other. I want to sell some extra land.. the other parcel without the house. When he died the value was quite high.. and into my name within a month so as a widow.. do I have some sort of step up thing. Im totally ignorant about it. Im a disabled veteran..last year around 13000 income and this next year with be around 14000. Any information truly appreciated.
If you received the property from him through inheritance, it likely received a stepped-up tax basis equal to its’ value at the date of his death. If you sell it after his death, then you’ll owe tax only on the difference between that stepped-up tax basis and the sales price, less costs of sale. It sounds as though he died recently, so probably it hasn’t gone up in value very much and very little, if anything, will be due in taxes.
Thank you for being such an accessible, gracious, and valuable resource! I am struggling with the qualifications for the capital gains exclusion. IRS says that eligibility is affected if you used the home after 2008 “as a vacation home or rental.” The house was rented below market value to my daughter’s family for 2 years and the rental income reported as Not For Profit Rental. Does the IRS consider this as rental of the home for determining the exclusion eligibility or are they only interested in rental as a business activity? Thank you!
If you rent out your home, then a portion of your gain will be taxable when you sell it even if you are eligible to claim the full $250,000 capital gain exclusion for selling a home that you’ve owned and occupied for 2 of the 5 years prior to divorce. I have a feeling that letting a relative stay in the home for below-market rents is not considered to be renting it, though that might affect your qualifying under the “live there 2 years of the past five” requirement. But check with your tax accountant to be sure about how to treat this in reporting the sale of the property.
Question on my parents farm that is separate parcel from their primary residence.
Farm was inherited from family relative in 90’s and put into parents name at 50/50 with no survivorship clause. There was debt against farm of 75k that parents had to pay off. The farm consists of a house (that is rented). We understand the we have to do probate court to get the deed certificate into mothers name after passing of father if mother wants to keep OR we can do option to sell property. During the 30 years of owning the farm there has been prob 150-200k of improvements performed on house and construction/maint of buildings. Market value of farm is 500k today. What type of taxes should mother except to pay based on not being primary residence?
The taxable gain is measured by the sale price less the cost of sale and the tax basis. The tax basis for your father’s one-half is the value at the date of his death. The value of your mother’s one=half is half of the value when inherited plus half of the cost of improvements, reduced by half of any depreciation claimed since inheritance. Any depreciation will be taxed at 25%, and the rest of any gain will be capital gains taxed at capital gains rate.
Please help me out with the following scenario. All the events occurred in Washington state which is a community property state with no state income tax. Will any income taxes be owed on the sale?
2010 – Mom bought her residence for $200k
2012 – Mom got married. Husband moved into the residence but was never added to the deed. FMV of residence $300k
2021 – Husband passed away. FMV of residence $600k.
2022 – Mom sells residence for $650k.
She bought the home for $200 and sold it for $650, so that’s a pretty big gain. She can deduct the cost of any improvements that she made to the home and also any costs of selling it that she incurred. Under the law she can exclude up to $250,000 or the remaining gain, since it was her principal residence. If Husband had still been alive, he could have joined with her in that gain exclusion and excluded another $250,000, even though he didn’t own the home, if he had lived in it for 2 of the 5 years prior to sale and filed a joint tax return with her, even though he had no ownership interest. It would make sense to me that his $250,000 could be used, even though he is deceased, but I don’t know for sure. You’ll need to consult with a tax preparer who can research that issue to find out for sure.
If a home is in Wisconsin and a spouse dies, the widow should receive 100% step up in basis. What happens to the basis if this home was used for an in home office and depreciation was taken over the years?
As I understand it, the entire property gets a stepped up tax basis if it was owned by the deceased person at death, or jointly owned with the spouse as community property. You can check with a tax professional to be sure.
Hi all, my husband just passed away in July. I am 73 and at a lost at what to do next. I would like to stay in my house but it’s too big and have to many things that needs to be done. I am considering paying off my house, but at a loose of where go once It’s sold. My house is a little under 40,000 and I really undecided at what my next step should be. Any advice would be a blessing.
I’m sorry for your loss, and I certainly understand you wanting to stay in the home, with so much else changed in your life. But keeping the home probably isn’t your best financial move, since the house is too big for you and requires so much deferred maintenance that will be difficult for you to get done. So investigate the cost of buying a smaller home in your area or renting and see what options might work better for you in the future. If you belong to a church or similar community, you probably can find people who can support you in thinking this through.
Hi Gina – I live in Georgia and received our home by tenants in common right of survivorship when my husband passed. Unfortunately, we have only lived here 6 months before he died. I want to sell the house now, but don’t see any way out of short capital gains if I do that. Does the step-up apply to me in this scenario? Would it be helpful to me to “hold the note?” I do own the house outright. I’d rather not have to stay here just to avoid the high penalty. But even on a small, it is a huge tax amount. Aside from my two questions above, do you have any further advice for me? Thank you
My advice is to talk to a tax professional to find out what the tax consequences are in your particular situation. His half will have received a tax basis equal to 50% of the value when he died, and your half will be based on what you paid for the house plus any improvements. If you had lived there for 2 years or longer, then you would receive a $250,000 capital gains exclusion, and you could use his as well if you sell within 2 years of his death. You weren’t there 2 years, but I believe there are special exceptions under IRC Sec. 121 for unexpected happenings, and death would be one of those. So, for example, if by the time the house is sold you have lived there for 1 year instead of the required 2 years, then you could claim 1/2 of the $250,000 exclusion, and you could claim the same amount for him if sold within 2 years. But check with a tax professional to get the exact tax treatment that you might expect, given your circumstances.
Ms. Wall, thank you for this. Can you tell me whether it is true that if the widow lives in a community property state, the stepped up value of the home applies to the both spouses’ shares and not just the deceased? Also, is there ever any extension of the sell-by-two-years-after-death rule? If the widow is in a nursing home, does that do anything to extend it? Thanks!
If the property is held jointly as community property, then the entire property gets a step-up in tax basis upon the death of one of the joint owners. I don’t know of any exceptions to the rule that to claim the deceased spouse’s $250,000 capital gain exclusion the home must be sold within two years of that spouse’s death. I doubt that there are exceptions, given that the original rule was that it had to be sold by the end of the calendar year of the death, and it was changed to two years to give the widow(er) extra time.
Hi
Great article and your replies to everyone goes above and beyond. Your article answered my main question so I’m happy I found it. The question I have is: do the States follow the IRS rules for capital gains or do they deviate; especially as it applies to the $250,000 exclusion and the stepped up basis as of the date of death?
Thank you very much
Some states conform to federal tax law, and some states deviate from it.
My wife passed away in November 2020,we paid $300,000. for our home 48 years ago. At her date of death, our home was market value $1,100,000. I am selling our home closing in August, 2022 for $1,800,000. I paid no income tax as my income is not enough, I am 89 years old. You are a very kind soul to help everyone as I have just read your responses. God Bless You! My basis would be $150,000. plus $550,000.;plus $250,000. x2 as within two year period. Capital gain would be $1,800,000 less cost of sale or $1,670,000. less $1,200,000. or $470,000. I pay no income tax as not enough income;how much capital gains tax would I have to pay;do I add this amount into my tax return?My son thinks I will lose half of my money and I need my money for my care. Thank you for your help giving me peace of mind!
You will report the sale on Schedule D of your Form 1040 for 2022, and will compute the tax on page 2 of that tax return. I’m guessing that you’ll owe about $70,000 in federal taxes on your sale, and possibly state taxes as well, depending on the tax structure of your state. I recommend that you make an estimated tax payment of around that amount on Sep 15 using Form 1040ES. That way you won’t pay any penalty for having a taxable event and not paying over the tax right away. You’ll claim that estimated tax payment on page 2 of your Form 1040 when you file, and will either owe the government a little more or get a refund of some amount.
So, Ms. Hall in the example above (GEORGE) if I’m reading this correctly –this person took advantage of the stepped up basis AND the 250,000 ??? is this acceptable with the IRS.
THANKS,
Joe
Property that is part of the estate of someone who died receives a stepped-up tax basis to the value at the date of death. If the person who inherited the property then sells it, the gain is computed by subtracting that tax basis from the sales price reduced by the costs of sale. If the property sold was the principal residence of that seller and they lived there for two of the five years prior to sale, then that seller can offset their $250,000 capital gain exclusion against that gain.
Thank you very much for your response. Our CA home was titled in the trust from the beginning of purchase in 2007. Does the property still get an increase in tax basis if it has been in the name of the trust the entire ownership time? I will need to sell sooner than the 2 years and would like to use the 500,000 exemption if possible. He did have income Jan-May 2022, I do not have taxable income. If improvements are made in 2022 prior to sale can those be deducted as well?
Most trust documents say that any property put into trust retains it’s character that it had before it went into the trust. So if the funds used for the purchase were community property of the couple, then the home would be community property, barring any other legal agreement. And yes, any improvements made during the period of ownership increase the tax basis of the property that is deducted from the net sales price in computing taxable income from the sale.
Thank you very much for your helpful response. If the home is sold for more than the purchase price, once sold and mortgage is paid off, realtor costs are paid, is the capital gains tax based on the remaining profit? Or is capital gains tax based on any amount above the purchase price after using the 500,000 deduction?
The IRS doesn’t care whether you have a mortgage or paid cash for the home. The gain is the sales price minus the cost of sale and minus the original cost and improvements. Everyone is entitled to exclude up to $250,000 of that resulting gain, so you only pay tax on the excess gain (if any).
Hello,
Can you include the $250,000 single (widow) exemption in addition to step up in basis for the other 50% inherited from the death of a husband?
In other words, if a house was bought for $200,000, and the husband dies when the house is valued at $860,000, then the house sells for $1.35M.
Would the half of the inherited portion be as follows:
$1.35M – $860,000 = $490,000 + $250,000 exemption = $740,000 non-taxable (plus non taxable capital expenditures). Is this legally allowed?
Also, when calculating this, can the $250k exemption be used on both halves?
Thank you so much!
If the home was held as community property, then both halves receive a stepped up tax basis to the value at the date of death. If not, then just the deceased spouse’s portion receives a stepped up tax basis, and the tax basis for your half would remain what it was prior to the death (plus the cost of any improvements that were done subsequently to the death.)
If it has been your personal residence for 2 of the five years prior to sale, then you can claim a $250,000 exclusion from capital gains. If it was sold within 2 years of your spouse’s death, then you can also claim his $250,000 capital gains exclusion.
Thank you so much for doing this. I am a new widow as of this year. I am selling my home which has always been in my name only because of my husband’s poor credit rating at the time. I live in California, and I am 73 years old. The home is owned outright. I make $23,780.00 per year on social security with no other income. We paid $125,000 for the home in 1996 and lived in it the whole time. It is now worth about $400,000 or so. I’ve read all the comments here and on other sites, but I am still unsure as to my capital gains status.
I read where the government takes your annual income into account plus the capital gains the year of the sale to figure capital gains owed. That’s a lot more than I make each year, so it sounds like a penalty if I have to go by the $250,000 number. Hopefully, I am misunderstanding what I read. From what I’ve read here, California is a community property state, so I may be able to claim the $500,000.00 exemption even though my husband’s name is not on the deed. Of course the home probably isn’t worth that much anyway.
Also, I would like to know if I have to claim any of this when I file my taxes next year should I sell this year. Thanks for your kind help.
As a surviving spouse, under current law you may claim the $500,000 exclusion if you sell the home within two years of your spouse’s death and are unmarried at that time. So you shouldn’t have any federal capital gains taxes to pay.
Just to clarify, you mean if I don’t marry again within the two years, right? And, I am assuming, I don’t have to report any of this on my taxes even though I don’t have to pay it? Sorry to be so dense. 🙂 Thanks again, Genita, for being so generous with your help. This should be my last question.
Yes, if you don’t remarry within the two years. Usually, when you sell a home, you fill out a form in escrow that says that you don’t expect a taxable gain, and so the IRS doesn’t issue you a 1099-S and you don’t have to report the sale on your tax return for the year of sale. If you do receive a 1099-S, then you will include it on your tax return, indicating that you are taking the $500,000 in exclusions and so don’t owe any tax.
What happen if the house was under my husband name. And he had a reverse mortgage. I sold the house and I receive 150k. But 1099s under state of my husband name; do I need to include this form on my taxes even it’s not under my name?
It sounds as though the IRS will be looking to see that your husband reports it on his tax return, not yours.
Hi.
Thanks for response. Can you please clarify.
We’re trying to figure out the correct cost basis to use for mom starting depreciation all over again.
Is it her new cost at $529,000 (which is half the value at the date of dad’s death for the portion she got from him & her half of the original cost minus half the depreciation taken years ago) OR the $1,000,000 which is the entire value at the date of dad’s death the amount to use to start depreciation.
She rents out a portion & lives in rest of house. Parents finished allowable depreciation years ago. But we heard that when a property has a new cost basis you can start new depreciation & if you don’t take you will still be subject to depreciation recapture when you sell. In this case mom got 50% step up so she has new cost basis.
Thank you for your help.
Assuming that your figures are correct, her tax basis is the $529,000 value. But remember, she can depreciate only the home, not the land. So if the land is 60% of the value and the home is 40% of the value shown on the property tax bill, then the basis of the home is 40% of the $529,000. And if she rents out only 25% of the home, then she can depreciate only 25% of that figure.
Hi. Recently came across your articles which are very helpful.
My parents jointly own house in New York. Dad recently passed away. We heard that mom gets a 50% stepup basis on my dad’s half of the house & that she can start depreciation allover again (House is partially rented out). To start depreciation, is the new adjusted cost basis $545,000 (half of original cost plus half of fair market value) used or the fair market value of $1,000,000 used to calculate depreciation?
Bought years ago for $90,000, fair market value is about $1,000,000 on his date of death.
Also, how is capital gains taxed on partially rented homes (30% rental) balance of house owner occupied. She’s still living there but may look to sell a few years down the line. She’s worried about the tax hit since the house has appreciated all these years & the depreciation recapture tax. ‘m only aware of the $250k tax exemption since it’s her primary residence.
We would really appreciate any insights you have. Thanks!
Her share doesn’t receive a step-up in basis, but his does. So her new tax basis for the entire property (home and land) is half the value at the date of his death for the portion she got from him, and half of the original cost for the portion she owned herself, minus the depreciation that has been accumulated thus far. And of course, land can’t be depreciated, so the depreciable house would be just a portion of that total tax basis.
Not sure if can help me but it’s said “The only Dumb question is the one not asked”. In 2013 my sister and I invested $144,874 with an investment firm that specializes in Property (LP). This was done for our mother so she could continue to live in an assisted living care facility. Mother passed away in 2020 and I now receive a monthly check from this investment which I receive a K-1 (1065/565 ) for. I would like to Cash out my half but am being told by my sister that if I do there would be a significant Capital Gains Tax. At one point she told me I would receive a check for between 100K to 115K but in the next E-mail she stated that it would be my half of my original investment $72,437 less the bottom line of the K-1 $24,656. (Line L of the 1056, Ending Capitol Account) and then there would be Capital Gains Tax along with that. I can’t see that if this investment is making money that I would get less than my original investment and if it was losing money, I would have to pay CG Tax. I would like to have the lump sum instead of a “Monthly Allowance”. Approx. what am I looking at in the way of any Tax on this.
I understand your concern: how much will you receive if you cash it in, and what will the taxes be on that. I don’t know the answer to either of those, since I know nothing about the investment, but it does seem to me that the investment firm or the general partnership would be the ones to answer those questions, so why are you asking your sister? At any rate, I’m guessing that your capital account in the partnership, as shown on the K-1, will be your remaining “tax basis” that you can subtract from what you receive when you cash out. So the difference between what you get and your capital account balance will be what’s taxed for capital gains purposes, probably at a 15% federal rate plus any applicable state tax that would be due.
Dad died 3/2021. NY – common law state, both on title, home purchased for 16000 in 1954 plus 40000 capital improvements. FMV at dad’s death 600000.
1) If mom sells within 2 years from dad’s death- is this the correct calculation? 300000+8000+20000 =328000. Mom would be able to deduct (assume sale price) ex. 700000-( 328000 (dad’s step up) +mom’s 1/2 of 8000+20000)-closing costs then – 500,000 cap gains exclusion =so no capital gains?
2) Now if mom doesn’t want to sell before 2 years from 3/21 then is it same as above except she can only then subtract her 250,000 capital gains exclusion so she might have capital gains upon sale?
3) If she dies before she sells home – home is reset at FMV at her death and children get with zero taxes if they sell before it might appreciate. Did I get all that right or am I missing something?
Dad’s half has a tax basis of $300,000. Mom’s half has a tax basis of $28,000, so the combined tax basis is $328,000. The gain is the sales price minus cost of sale and minus that tax basis. She can apply a capital gain exclusion under IRC Sec 121 of $250,000. And if it is sold within two years of his death, she can apply his $250,000 exclusion as well. If she doesn’t sell and still owns it when she dies, the tax basis will become the value on the date of her death.
Ms. Wall,
I live in CA. Am I mistaken – here, I thought as a married couple (which I thought a new widow can still claim for 2 years after spouse’s death) the exclusion is $500,000 , and the $250,000 exclusion applies to single filer status.
Appreciate clarification on this.
Jan H
If the home is sold within 2 years of your spouse’s death, then you can use his $250,000 exclusion as well as your own.
My husband just passed away in May. We purchased our home in 2007 in CA for 910,000 and market value is 2M+ on average currently. The home is in the name of our trust. If I sold within two years, paid off the mortgage, would there be capital gains tax even after the 500,000 exclusion? I do not have any taxable income.
I’m guessing that the property was community property at the time that it went into the trust, and so it get’s an increase in tax basis to the value at the time of his death. So when you sell it, the gain will only be the increase in value since the date of his death, minus the costs of sale. That will likely not exceed your $250,000 exclusion, and if you sell within 2 years of his death, then you can use his $250,000 exclusion as well. So I’m guessing that you won’t have any taxable capital gains.
My mother has her house in an irrevocable grantor trust. She sold her home this year. My stepfather purchased the house in 1977 for $52,000 (before they were married). She was added to the deed in 1993. The appraised value on his date of death was $250,000. She sold the house for $325,000. So would the calculation for determining basis be:
$52,000/2 = $26,000 (plus 50% of improvements and purchase costs)
DOD value $250,000/2 = $125,000
Then add all the improvements she made after death? (I am still adding those up)
Also adding in the cost of expenses during sale this year.
That will give me the gain (I know there is a gain) and that will get reported on her personal tax return through a K-1??
On the 1041 is this entered on a Schedule D?
Not a community property state.
Thanks, reading all these posts has been very informative.
You have determined the tax basis as being half of the original cost plus half of the improvements to date of his death, plus 50% of the value at the date of his death, plus all of the improvements since then.
The gain is determined by taking the sales price and subtracting that tax basis and the expenses incurred in selling it.
Since it is owned by an irrevocable trust, I don’t know if she can also deduct the $250,000 capital gain exclusion since it was her principal residence.
And I don’t know where it goes on the trust return, or how the trust reports any income that flows through to her.
Hello great advice!
My father died on Feb 18, 2022. So, as I understand, my mom’s cost basis would be adjusted for the 50% that my dad owned. If she sells within two years of his death, can she still claim the full $500,000 capital gains exemption?
Example: Home purchased in 1975 for $60,000. Various improvements $100,000. Home value in Feb. 2022 is $900,000. So, is her cost basis 60,000 + 100,000 + 450,000 = 610,000?
If the house sells for $900,000, is the gain 900,000-610,000 = 290,000?
If it is $290,000 (or any amount over $250,000) and she sells within 2 years of his death, can she use the full $500,000 exemption?
Your dad’s share of the home has has tax basis of $450,000. Your mom’s half has a tax basis of 50% of the cost (30,000), 50% of the improvements (50,000) = $80,000. So the combined tax basis is $450,000 + $80,000 = $530,000.
To compute the gain, you take the sales price of $900,000, less costs of sale, which you didn’t specify, less the tax basis of $530,000 = $370,000 capital gain. Your mom can claim her $250,000 exclusion, and she also can claim his $250,000 exclusion if it is sold within two years of his death.
Thank you! Very helpful and so amazingly generous of you to do this.
Hi Ginita,
My parents bought some land in Washington after moving to Oregon. My dad died several years ago, and she still lives in Oregon. She recently sold the property. Would the step-up be 100% because the land was in Washington, which is a community property state, or 50% because she lives in Oregon, which isn’t?
Thanks so much for all this!
If your parents were Oregon residents at the time of his death, the laws of Oregon would apply.
Thank you for explaining so clearly the mysteries of computing Capital Gains on the sale of a widow’s house. I’m in a similar situation, although I sold my house for far less than this example. I sold within 7 months of my husband’s death.
Good morning,
My name is Brian. My wife passed away in September 2015. We purchased our house in 1984 for $80,000. I sold the house in August 2021 for $607,000. I/we have made quite a few improvements (addition, two new bathrooms, kitchen renovations, two new decks, etc.). I know I am eligible for the $250,000 capital gains tax and the renovations to the house (some of which I do have receipts). I was wondering if there are any other tax deductions I might be eligible. Perhaps the “Step Up” option??, or anything else. Thank you in advance for your help!!
If the house was in your wife’s name at the time of her death, then the house’s tax basis was “stepped up” to the value at that time. If the house was titled in the name of both of you or your family trust, then the value of 50% of the house is “stepped up”, and the other half of the tax basis remains as it was. If you lived in a community property state and the house was held in both names as community property, then both halves get the stepped up basis.
Thank you Ginita for getting back to me. I’m still a little confused on the value of 50% of the house is stepped up. If the capital gain on our house is $527,000 ($607,000 – $80,000). Can I only claim the $250,000 as a single person??, or is there anything else?/. The house/deed was in both our names. Again thanks for your help!!!
If the home, or part of it, was in her name when she died, that portion gets a stepped up basis. Now years later, when you sell it, you may deduct that tax basis in computing the capital gain. And then you can exclude from taxation $250,000 of the capital gain since it was your principal residence for 2 of the past five years. If it had been sold within 2 years of her death, you could have excluded up to $250,000 of capital gains for her as well, but at this time, years later, you cannot.
my husband diedon 2017, He had real estate that he purchased for 170k back in 2005. It has been used as a rental for the past 10 years. I am not on the original title, though through probate, I added my name & our child’s trust name to the title (each at 50%).
Sold the house in 2021 for 365k.
Once the loan is paid off, each of us gained 140k (net gain of 285k).
When I file taxes this year, do I file this sale under his estate tax filing? Or under my own tax return?
What happens to the net gain since its over 250k (or is that irrelevant because we never lived there)
Does it matter that my gain is 140k and my child’s trust is 140?
I will talk to an accountant, but any information I have prior, helps me understand the process.
Thanks
At the time of your husband’s death, the property probably got a “stepped-up tax basis” to the value on the date of his death. That is the tax basis you would use to figure out the taxable gain, not the $170,000 purchase price, and certainly not the amount of cash you realized once the loan was paid off, as you seem to be doing. If you and your child (through their trust) each own half, then you will each report half of the taxable gain on your tax return. As to the $250,000 exclusion on the sale of a principal residence that you reference, it doesn’t apply to a rental property.
Before you see your accountant, I suggest you contact the real estate agent who sold the home (or any other real estate agent of your choosing) and ask them to do a market analysis of the value at the date of your husband’s death in 2017. Your accountant will need that information in order to figure the taxable gain and the tax on it.
How is stepped up basis calculated? Do you file paperwork at the time of the spouse’s death? If my mom passed away 10 years ago, how do you retroactively calculate the stepped up basis as my Dad is now preparing to sell the house?
If your mom’s estate was worth over $5 million at the time of her death, then an estate tax return likely was filed and you can simply use the value on that return. Otherwise, ask Dad’s real estate agent to provide what I call a “backward valuation” as of that date — I think it is usually called a historical value. They can look at the sales around that date and come up with a value, and that should be sufficient to establish the value back then.
My wife passed away last year and I want to sell the home, but her kids keep coming around now but never before especially on her death bed. If I sell my home do I have to give anything to my ex step son?
If you inherited her share of the home and so you own it 100%, it is yours and you can do whatever you want with the proceeds from the sale. If your step-son inherited a portion of the home from his mother, then you would need to give him a portion of the sales proceeds (and he would need to join in the sale as co-owner and sign whatever papers are necessary).
I stumbled across your article and still don’t have an answer to a situation that looks at things a bit further than just first spouse and surviving spouse.
Parents purchased home back in 1960; home placed into joint irrevocable trust in 1991; father passed away in 2000 (with attorney advising to split all assets – half in joint trust and half in new trust for mother); and Form 706 is filed in 2001 declaring estate values and no estate taxes due. Mother intends to give property to sons upon passing, but wonders if there will be any capital gains tax on father’s half that received step up basis back in 2000. The assumption is that mother’s half upon her passing will get a step up in basis. Both trusts specify to have all assets split evenly among beneficiaries.
You are amazing in that you have been responding to posted questions for this article for over 4 years. Unfortunately, I don’t think I have seen any mention for thoughts of what planned considerations are there for beneficiaries when the second person dies. My mother is still able to make changes if necessary, and wants to minimize the tax burden on passing assets after she dies. Total estate value of both trusts combined are under the current 11+ million exemption, so there is no estate tax concern, possibly just capital gain. Since father passed away long ago, I don’t think the “portability” option can be applied either. Does she need to move everything into her individual trust in order to have all assets get the full step up in basis?
You are right, you are asking questions about a complex situation and clearly don’t have enough information. I don’t know the answer because I don’t know the terms of the trusts involved.
Back in the day when your dad was doing his estate planning, the general advice was to put assets into a living trust that provided upon death, the surviving spouse (your mom) would have her share of the assets go into an A trust (“A” = person Above ground) and the decedent’s share would go into a B trust (“B” = person below ground). Your mom could do whatever she wanted with the A trust assets, which had belonged to her all along, but could only draw income from the B trust plus any assets needed for her health, education, support and maintenance (those are called “ascertainable standards”). Your dad’s will and trust provisions would provide that the assets in that trust that remained upon your mom’s death would go to the designated beneficiaries. You can review the trust provisions to see if that’s the case. For what I’m going to say next, I will assume that those standard provisions apply in this situation.
Your mom has full control over the assets that are in the A trust, so upon her death they will be a part of her estate. Under current tax law, those assets are a part of her estate and so they get a step-up in tax basis to the value at the date of her death. But the assets in the B trust are a different story: those assets were part of your dad’s estate, and so they got a stepped up basis to the value at the date of his death. But since your mom doesn’t control those assets, which are subject to the ascertainable standards I talked about and so are “controlled from your dad’s grave” (I mean no disrespect by using that language), those assets in the B trust aren’t part of her estate and so won’t get an additional stepup in tax basis upon her death.
Now, as for the question you ask about her moving assets from the B trust into the A trust, look closely at the provision of the B trust. If her powers are limited to those ascertainable standards I talked about earlier, she doesn’t have the power to do that, unless she can show that she needs the assets to live on or for her education or medical expenses. So whether she should move the assets is a moot point: she can’t. But if the trust says she has full power over the B trust to move assets in or out, then she does have control over those assets. And if that’s the case, then they will probably be included in her estate and get the step up in tax basis, whether she leaves them in the B trust or takes them out. If the trust gives her general powers over the assets, it probably won’t matter whether they stay in the trust or are taken out and held in another trust or individually, they will be part of her estate and get the stepped up tax basis.
Clearly, I don’t know the terms of the trust, and I’m guessing that you don’t know them either, at least at the detailed level that I’m discussing. And it is the terms of the trust that hold the answers that you are seeking: there is no blanket rule for the second to die, it depends on what the trust says. Go through the trust provisions and see what they say, according to your best interpretation. What I do know is that trusts are written in legalese that is often hard to understand, and so you may want to get someone to read it who is accustomed to reading those provisions and will have the ability to tell you how they apply in this situation.
How is Joe Biden’s plan to eliminate the step up loophole going to affect us in the future? Is there a provision protecting up to one million in capital gains? I’m getting more confused than ever as I read more about it. I live in Montana and have joint tenancy with right of survivorship. I don’t want to sell my house just yet, but don’t want to end up paying a ridiculous amount of taxes on the capital gains when I do sell. My house has gone from $157K when I bought it to between $850K and one million. My husband passed away a year ago.
Presidents cannot enact tax legislation, so whatever he proposes will have no affect on us in the future unless passed by Congress and then signed into law by the President.
As I understand it, those will income above $10 million a year will have higher tax rates under his proposed tax law changes. That will not be a change that affect the tax rates for most of us.
Under the American Families Plan proposed by President Biden, your assets would still get a stepped up basis upon your death if your estate has less than $1 million in unrealized capital gains (or up to $2 million if you were predeceased by a spouse).
So that’s what the future could look like. But let’s deal with what the present is, since that is where you are, right now. Your husband’s share of the house received a stepped up basis to the value at the date of his death a year ago. Your share of the house retained it’s original tax basis, which was based on the original purchase price plus the cost of improvements made.
So if you sold today, your gain would be the sales price less the cost of sale and less the tax basis (your spouse’s stepped up basis and your own original basis). So figure out what that would be, even though you aren’t really interested in selling right now.
You can exclude up the $250,000 of gain since it has been your primary residence. In addition, if you sell the home within two years of your husband’s death, you can apply his $250,000 capital gain exclusion as well.
So now you have the information to see what the taxable gain would be if you sold within that two-year period, or later.
And BTW, the tax basis that I described above is locked in and won’t be changed by any future proposals for tax law changes, since it is based on the law in effect at the time of your husband’s death.
Great article and helpful comments. I am trying to figure out the cost basis tax consequence for my parents.
My dad is 82 and my mom is 81
They are KY residents and file married filing joint
Home purchased in 1973 in joint name for $50,000
Improvements of $200,000 – $250,000
Value $650,000 – $700,000
No mortgage
At some point in 1980s-1990s, home titled to my mom’s name only for estate tax purposes
Estate tax no longer a consideration
My dad is terminally ill
Should they title the home jointly now so that 50% of the home will get a step up in basis?
Does my dad need to live for 12 months once the home is retitled for my mom to get the 50% step up in basis?
The home will not be sold while he is still alive, but probably after he passes.
Would my mom need to sell the home within two years of his passing to qualify?
Thank you for your help!
At this point the tax basis of the home is $250,000-$300,000 (cost plus improvements). If it were sold now for $650,000-$700,000, the capital gain would be around $400,000. If your dad filed a joint return with your mom and agreed on that joint return to apply his $250,000 to the sale, even though it is only in her name, then they each could claim $250,000 capital gain exclusion from the sale of a personal residence, and there would be no tax to pay. If your dad were a joint owner of the home at the time of his death, and the home were sold within two years of his death, your mom could elect to use his $250,000 exclusion along with her own and eliminate tax. I don’t know whether this works if she’s the sole owner at the date of his death, which she now is, but a tax person could research this for you and tell you.
If the house stays in your mother’s name, when your dad dies it will not get a stepped up tax basis to the value at the date of his death. To get that step-up in tax basis, the home would need to be titled in his name alone (step up of 100% of the home) or jointly with your mom (step up of 50%). Given that the home was put into your mom’s name for estate tax purposes, you’ll probably want to check with the estate planning attorney to be sure that there won’t be adverse estate tax results or property tax results if it is retitled before his death. Also ask the estate attorney about IRC Sec. 1014e, that says that if your mom deeds the home to your dad, and your dad dies within a year of that event and leaves the property to your mom, there is no step-up in basis. The attorney may still may be worth retitling the property to your dad if there is little lost estate-wise if the property is in his name, and there’s a lot to be gained capital-gain wise if he lives for more than 12 months after the retitling, because the property would get the stepped up tax basis.
Is it better for my husband and I to put our house title as community property or joint tenancy? I was told putting it as community property would prevent us from paying capital gains. Is that true? We live in California. If my husband dies first, I would likely sell the house and if I understand correctly, if I sell within 2 years I would get that 500,000 exemption correct? Joint tenncy has only a regular step up basis where community has a double step up basis? Hypothetically, If we bought our house for 160,000 and the value of the house the day my husband passes is 500,000 and I sell it for 500,000 within two years of his death, the capital gains on the sale of the house would be about 170,000 and since my exemption would be 500,000, I wouldn’t have to pay any capital gains? Am I understanding this correctly. And if so, it doesn’t really matter if I change the title to community property because under joint, I still wouldn’t have to pay capital gains, right? Does it really make a difference using these numbers to change to community property?
Here’s what I found online:
Joint tenancy has special implications that California residents should be aware of. If you hold a home in joint tenancy with your spouse, the surviving spouse retains the original cost basis on 50% of the home instead of getting a step-up in basis on the entire home.
I believe you are mistaken.
CA is a community property state and residents always get a 100%!step up in basis, regardless of how the property was titled.
Check the journal of accountancy articles on the subject and it’s clear.
I’m afraid that what I see belies what you are saying. It is possible to specify in your will that property held in joint tenancy is confirmed to be community property, but barring that, joint tenancy may have unintended results when it comes to step-up basis in California.
Can you provide your sources please. I am in the same camp as John. California is a community property state which provides for 100% step up when the first spouse dies. Thanks
https://www.cpajournal.com/2017/08/18/greatest-hits-community-property-step-basis/
“To ensure a full step-up in basis, attention should be given to how property is titled. Property intended to be characterized as community property should be titled as community property and not as joint tenants. According to Rev. Rul. 87-98, if property purchased with community funds in a community-property state is titled as joint tenants, it should nevertheless still be possible to obtain a complete basis step-up by expressly stating in joint wills that the property is intended to be a community asset.”
I live in California. My sister-in-law is telling me that we should change the title of our house from joint tenancy(my husband and I) to community property to avoid paying capital gains tax when one of us passes. I know if I die first, my husband will stay in the house until he passes and won’t have to worry about capital gains unless he decides to move, correct? If my husband dies first, I would move since I wouldn’t be able to maintain the property by myself. So as long as I sold the house within two years of his death, I would get the 500,000 exemption and that alone would keep me from having to pay much, if any, capital gains? Just seems like a hassle changing the title if it really wouldn’t affect us much. Our house is fully paid off if that makes any difference.
Here’s what I found online:
Joint tenancy has special implications that California residents should be aware of. If you hold a home in joint tenancy with your spouse, the surviving spouse retains the original cost basis on 50% of the home instead of getting a step-up in basis on the entire home.
My husband and I put our home in an irrev trust in March of 2019. He had a long hospital stay followed by a long nursing home stay in 2018. Hence the trust. He is now fighting cancer stage four and was told to go home and enjoy the time he has left. We bought our home in 1989 for 300,000. It is now worth approx 1 million. Will I have a step up when he passes or do I need to break the trust and put the home back in our names?
Please talk to the attorney who drew up the trust, or some other trust attorney who can review it for you. I don’t know the terms of your irrevocable trust and so I don’t know the answer.
Hi there –
I want to clarify. If the house is sold AFTER 2 years of their death, are the capital improvements half or full? I have 2 accountants telling me two different things.
Thank you!
You are getting two different answers because there are two different treatments at play:
If half the house received a stepped up basis at the time of death, then improvements to that half AFTER the date of death increase tax basis. And since we are talking about half the house, we are also talking about half the improvements.
For the other half of the house, if it received no step-up in tax basis, then all the improvements since you bought it will increase the tax basis. And again, we are talking about half the house, so we are also talking about half the improvements ever made.
In summary, half the improvements to date of death are added to tax basis, and all the improvements since date of death.
This is a wonderful forum. I do have a question that could apply to others.
I am 15 years older than my wife. We are in the process of creating a revocable trust, and will presumably place our home, which is jointly owned, into that trust. If we make an assumption that I die first, and that my wife lives in our home for another 5 years after that or more, is there any way that the step up in value for my half of the house applies, when it is in a trust? Is there a reason to keep it out of the trust, from the perspective of eventual capital gains? I’m guesstimating that the gain will ultimately exceed $250,000 after cost basis adjustments.
Thanks
I’m guessing that your trust, like most trusts, is a revocable living trust, that you can put assets into or take assets out of at will. Those trusts are great at avoiding probate, since your assets pass to your heirs according to the terms of your trust and not your will, avoiding probate court and the attendant fees. But since your trust is revocable, it is not truly another separate entity from you while you are living, but rather is just “another pocket in your pants” so to speak. Since anything that belongs to your trust is still yours, anything titled in the trust will get the same step-up in tax basis that it would if it were still titled in your name.
My husband recently passed away.. At the time of his passing, we owned our home jointly. However, he originally purchased the home with his first wife. We still have a mortgage. How would the step up for taxes be determined? Would the home still step up to the current value?
His half of the home that was in his name would get a stepped-up basis to the value at the date of his death. If you live in a community property state, the half belonging to you would get a stepped up basis to the value at the date of his death. If not, the half owned by you would remain at the tax basis it had before, which likely is what he and his first wife paid for it plus the cost of any improvements they made or he and/or you made.
So basically, since we live in CA, the home’s value would be based upon the value at the time of his death, period.
Hi ginita thank you so much for this helpfull information
My father owned a house together with mom it was purchased 30 years ago for 70,000 the house was put in a trust account as a life’s estate for my parents but I am the benefficiary my mom died 5 month ago the house is worth 1.2mill now. My father wants to sell the house now. My question is can I use the step up process although the house is in a trust.
If all your parents had was a life estate, that means the property was given to the trust, and is owned by it. So your mom didn’t own the house when she died and it doesn’t get a stepped-up basis. But you should review the terms of the trust with someone to see if that’s really the effect of the trust. If it is, and the property is sold, it is the trust that sells it and the trust that gets the proceeds, not your dad.
My dad passed away in February 2020. My mom qualifies for the step up basis for the home. It was purchased in for 60k back in the 70’s and is now worth close to 1m. She is worried that she only has 2 years to sell the home in order to avoid big capital gains and take advantage of the step up basis, is that true?
Nope, she’s confusing the step-up in tax basis with the $250,000 exclusion for selling your residence. The portion of the property that your dad owned (or all of it, if a community property state) gets a step up basis, no matter when it is sold. To use his $250,000 capital gain exclusion against any remaining gain, the home would have to be sold within two years of his death. And your mom can use her $250,000 exclusion no matter when it is sold.
Dear Ginita,
I love that I found this site! My husband died August 3rd 2018. I sold my house two years later in Sept. of 2020 (one month after his two year death anniversary). Am I eligible for my $250,000 exclusion as well as his for the same amount, even it if is a month later than the anniversary? We have lived in our house for 31 years. If there is a $500,000 exclusion combined, I will not need to go through the 31 years of receipts of all the improvements. My H & R Block tax consultant/s have not gotten back to me for a week and I have a few ants in my pants to know the answer and the direction I need to go.
Nope, you missed the two-year deadline by six weeks, so you can use only your $250,000 exclusion, not his. But if you owned the house together at the time of his death, his half gets a stepped up tax basis to the value at his death, so that $250,000 exclusion may be sufficient to offset the rest of the gain.
Thank you for your response to my question yesterday. I have one more question.
I live in California, my husband passed away last April 2020 and I am looking at selling an investment house that I have never lived in. My husband and I both owned the house and the deed is now in my name. Because I have never lived in the house, I could not receive the $250,000 capital gain exemption/exclusion, correct?
The $250,000 exclusion is for the sale of your principal residence. Since you didn’t live there, you can’t claim that exclusion against capital gains.
My Dad recently passed away. Trying to help my Mom weed through the details. The deed was tranferred into her name 5 years ago, but they’ve owned the home for 40+ years. She and my Dad filed taxes jointly. Does the step up rule apply to her?
You’ll need to consult a tax attorney or CPA about that question. Since it was in her name alone, I’m guessing that it doesn’t get a stepped up basis to the value at his death, but that might be influenced by the laws of their state.
My husband and I have lived in California for 40 years. He passed away in April 2020 and I still reside in California. In 2004 we purchased an investment house in Texas for $120,00 and we have not lived in the Texas house. At the time of his death, it was worth $180,000 and the increased value this year is at $240.000. I’m looking at selling it for that price. How much capital gains would I be paying if I sold the house?
I’m guessing that the property received a stepped up tax basis to the value at the date of his death. If so the capital gain would be the sales price less the cost of sale and less the stepped up tax basis.
My husband passed away in Sept. 2020. The house was owned by his trust. He left the house to me in his will but the estate has not settled yet and the house is not yet in my name. I plan to sell it as soon as it is in my name, since it is too much house and property for me alone. The value of the house has increased considerably since it was purchased. Will I have to pay capital gains tax?
Depending on the laws of your state, half or all of the house received a stepped up tax basis to the value at the date of his death. Any portion that didn’t receive that stepped up tax basis has a tax basis equal to that percentage times the original cost plus improvements. The gain is the sales price less cost of sale and less the tax basis, as I described. If you lived in the house for 2 of the 5 years prior to sale, then you can exclude up to $250,000 of that gain. And if it is sold within two years of his death and it was his principal residence before his death you can use his $250,000 capital gains exclusion as well.
My husband passed away on March 29, 2013 and in 1996 we purchased our home for 166,000
Now almost 25 years later it is worth over 700,000 and if I am forced to sell it would I have to pay a chunk of capital gains tax? Shortly after his death I had to do a complete pipe replacement due to several pinhole leaks.
How do I find out what the house was worth on the day he passed away?
Ask a real estate agent in your area who can do a retroactive appraisal of the property to tell you what it was worth at the time he died. Your tax basis when you sell will be that value, if you owned it jointly, for his half and the original cost for your half, unless you live in a community property state. And you can add the cost of any improvements since his death to that value.
I have cancer and I live in maine,I need to move to fl to be close to family so they can take care of me in my final days. Do I have to pay capital gains?
If you sell your principal residence and you have lived there for at least two years, then you can exclude up to $250,000 of capital gains. If you haven’t lived there for two years, but you have to sell for health reasons, you can exclude a prorated portion of the exclusion. So if you’ve lived there just one year, then you can claim 1/2 of the exclusion.
Hi, I lived in community properties state of California. My husband died in November of 2017 over 2 years ( around 4 years). We owned and lived our home together that we bought in 1995 for $235,000. I don’t know what the house was worth on the day he died. Now it’s worth approximately $979,000.
If I sell the house would I owe any capital gains tax? And, what i am considering is that it have been more than 2 years ( around 4 more years) since my husband passed away. So, could you please tell me the the exclusion is $500,000 or $250,000 in CA over 2 years ?
Please show me the clearest calculations format.
Thank you so much!!
If you sell the home, your gain is probably the sales price minus the cost of sale and minus the value of the home at the date of his death. If that gain is $250,000 or less, you will owe no taxes. if the gain is greater than that, you will owe federal capital gains tax on the excess over $250,000, probably at a rate of 15% federal, and state tax as well.
My husband died in September of 2019. We owned our home together that we bought in 1986 for $400,000. I don’t know what the house was worth on the day he died. Now it’s worth approximately $979,000. We put approximately $450,000 in as capital improvements in all the years we are living here. If I sell the house would I owe any capital gains tax? And, do I have to sell it within 2 years that he died in order to get the widow’s step up?
Your spouse’s half of the property received a step-up in tax basis to the value of that half on the day he died. If you live in a community property state, your half did as well. Otherwise, your half will have a tax basis of 50% of the original cost plus cost of improvements. When it is sold you can claim a $250,000 exclusion for the sale of your principal residence. If it is sold within two years of his death, then you can claim his $250,000 exclusion as well. But it is likely that you will not need to rush to sell it, since the combined tax basis plus your $250,000 exclusion will exceed the gain on the sale.
My husband passed away in June 2019. We had an investment property that I would like to sale now. We bought the property back in 1996 for 145,000.00 it is worth now more that 400,000.00.
Would I qualify to qualify for a base line after his death and not be liable for the capital gain taxes calculated back to 1996?
Thank you!
If the property was in his name alone, then the tax basis becomes the value on the date of his death. If he owned only half of the property and you owned the other half, and you don’t live in a community property state, then half of the property gets that stepped-up tax basis and your half has the cost tax basis from 1996. And if you’ve claimed depreciation on the property, there will be some taxable depreciation recapture as well.
Hope I’m not asking a repeat question here… and hopefully it will help someone else as well.
I understand the concepts in determining the cost basis in regard to a deceased spouse, but was curious how qualified home improvements (performed both before and after his or her death) fit into the picture as well.
Father and mother bought their house in 1972 for $55,000
Father passed away in 2007 – house appraised at $550,000 on the day of his death
Mother will be selling house this year, probably for $600,000
Her cost basis would be $ 27,500 + $ 275,000 = $302,500
BUT… there were several significant home improvements made — both prior to, and after, my father’s passing.
1. How do the improvements made prior to his death fit into the picture? Not considered at all (since his cost basis has been established by using half the appraised value from 2007)? Or are they considered at half the price?
2. And are the improvements made after 2007 (when my mother became the sole owner) considered at full price?
Of course, I realize I would still need to apply the $250,000 exemption for my mom.
Many thanks for your guidance!
In addition to the cost basis you show, she should add her half of the cost of improvements before the date of his death, plus all the costs of improvements since the date of his death, since she was the sole owner at that point.
Makes total sense… Many thanks!
My husband and I purchased a piece of property (vacant lot) in Apr 1994 for $10,500.00 (jointly owned). He died in Jan 2015. I have sold it this year 2020 for $25,000.00. The tax value the year of his death was still $10,500.00. What would be capital gains amount be to include on my income tax forms, minus closing cost and etc. Thank you in advance for your assistance.
You say “the tax value” was still $10,500. It may be that the market value of the lot was higher — ask a real estate agent to give you their opinion about that. But if the market value was $10,500, then the gain would be the sales price minus the cost of sale and minus the $10,000 market value.
Husband bought prinary residence when the couple was divorsed. Then shortly they re-united, lived together but officially re-married 13 months before husband died. The title was transferred to the wife and she sold it 6 months after husband’s death. Filing taxes as qualifiying widow. Selling price 570,000 husband purchased for 394000. Can wife exclude entire gain of $176,000 using his husband’s ownership lenght?
If the deceased husband was owner of the property at the time of his death, then the property receives a stepped up basis to the value when he died, and likely there wouldn’t be any gain, or at least very little. If wife was owner of part of the property as anything other than community property, then only the portion that husband owned would get the stepped up basis. If wife owned the entire property at the time of husband’s death then none of the property would get the stepped up basis, and there would be the gain you state. In that case, yes, I believe the wife will qualify for the $250,000 exclusion on the sale of a principal residence.
A married couple acquired rental real estate in California via 1031 exchange 20 years ago. The asset is held in a revocable trust. The basis is 100k.
Upon passing of first spouse – the basis is stepped up to 100% of the FMV of the property – say $12m – in the hands of the surviving spouse (ignoring estate tax limits) – is that correct?
Thank you!
That is my understanding, but you should check with your tax preparer regarding your particular situation and the current state of the law regarding the step-up basis of rental real estate that has been depreciated and the subject of a 1031 exchange.
both my wifes parents died last year they owned a house and an apartment. my wife got the step up in value on the house and it has sold. she is thinking of selling the apartment does it also get the step up in value?
Yes, any property that they owned gets a step up in tax basis to the value on the date of their deaths.
My mother and father owned a condo 30 years ago for 155,000, they have always been married however my mother lived in a different residence, My father passed away, my mother sold the condo for 500,000, does she have to pay tax on the capital gains or if does the 250,000 exclusion apply?
If the condo was not her principal residence for 2 of the 5 years prior to sale, then she cannot claim her $250,000 exclusion for the gain on the sale of her residence. If he owned part or all of the condo at the time of his death, then part or all would get a stepped-up tax basis to the value at his death, which means for that portion the gain wouldn’t be much, if the sales price was similar to the value at the date of his death.
My wife and I have jointly owned this residence since 1972. We retired to Florida in 2008 and claimed full time residency until 2016. My son and wife occupied the house from 2008 to 2016. My wife became disabled due to advanced Parkinson’s Disease in 2015. We decided to move back to PA because I could take of her any longer. My wife could not physically live in our residence so we purchased another property suitable to her disabilities. My son and wife lived with my wife and provided her 24/7 care.I moved into our former home. My wife just passed away last week and I want to know if I am entitled to any/all of her capital gains exemption when I sell the house this year.
First of all, I’m so sorry for the recent loss of your wife. As to your complex situation, you should consult with your tax professional regarding whether there is a Sec. 121 gain exclusion for the sale of a principal residence, given that she was not occupying the house as her principal residence. But given that the house was in joint names, her half would get a step up in tax basis to the value at the date of her death, so that would greatly reduce the gain on the sale, regardless. And if the remaining gain is $250,000 or less, you wouldn’t even need her capital gain exclusion.
My late wife and I purchased a home in Texas in 2007. We paid $210,000. My late wife passed away in November of 2018. I sold the house for $500,000 in 2021. For what I gathered from you I can take the “step up basis”value of the home at the time of her death in 2018. Correct?
So then I take what I sold the home for, which is $500,000 and then subtract the “step up basis” value for it. The amount that is left between those two figures is my captial gains? Correct? And I have a $250,000 captial gains exemption. Does this sound correct? Thank you!
If you and she owned the home jointly as community property, then the entire property gets a stepped-up basis to the value at the date of her death. The gain would be the sales price, less costs of sale, less that stepped up basis, less any improvements made to it since her death. And you can exclude up to $250,000 of that gain.
Thank you!! I appreciate your help.
I purchased our home 25 years ago as a single woman and it is deeded only in my name. I do not live in a community property state. We have been married for 20 years living in this house, but never changed the deed. If we sell now, the capital gains will be $350,000. Can we use the $500,000 exclusion even if my husband’s name is not on the deed? In other words, will his living here 2 years prior to a sale allow the exclusion without him being a legal owner?
If so, will the IRS ask for proof of his residence, or will they know that from 20 years of his tax returns with this address? My concern is that the mortgage company will send paperwork saying that I owe taxes on $100,000 capital gains since they don’t know my husband exists. Would it be wise to add his name to the deed prior to a sale?
The mortgage company will not send a document saying that you owe taxes. They will send a 1099 showing the sales price of the home. If you wish to claim your Sec. 121 exclusion of $250,000 you may do so on your tax return. And if he has lived there for 2 of the 5 years prior to sale and you and he file a joint tax return, his $250,000 exclusion can be used as well even though he was not listed on title. And of course, you could add his name to the deed prior to sale if you like.
Purchased property as Joint tenants with right of survivorship in 1986. Made improvements over the years as second home. Husband died in 2019. Sold property in 2020. Is his half stepped up basis?
Thank you.
When someone dies owning property, that property gets a stepped up basis to the value at the date of their death. If your husband owned half the house at his death, then his half would get the stepped up basis. If you resided in a community property state, it is possible that both halves got a stepped up basis, depending on the laws of your state.
Ok. I have a doozy for you. Wife died in 2009 leaving no will. Prior to that her father passed in 2003 leaving home to her (note she married in 1980 and raised 4 children in this home). Husband has to 1) pay 5 years of back property taxes not paid.( he found this out through mail upon her passing that it was owed) 2) must go through two probate because wife did not transfer property originally and left no plans for estate. Probate determines that 5 children are entitled to 2/3 of him equally and husband (who had maintained home, paid all taxes, repairs etc,) was entitled to 1/3. This took a few years to handle. In 2012 title changed to home to show probate outcome. (Husband 1/3. And 5 children each owning 1/5 of 2/3) . In 2017 husband remarried. In 2018 husband and children sale home for $1.700.000. Husband handles all fees, escrow, attorney, etc etc 2/3 went to children. 1/3 went to husband appox $566,000. Husbands (now remarried). Purchases home for $203,000 with new wife. How much capital gains does husband owe (if any) and can he right off all lawyers fees, probate, escrows, repairs. Home sold in Los Angeles, new home purchased in palm desert. Pot in California. Not able to transfer prop 13 because of different counties
Are you talking about tax on gain on the house sold in 2018, for which the tax return was due April 15 2019? If so, the tax basis was established in 2009 at the date Wife died. So his gain would be 1/3 of the difference between the sales price less costs of sale and the value back then. If he lived in the home for 2 of the 5 years prior to sale he can exclude up to $250,000 of that gain.
The probate and associated costs are generally paid by the estate, or if paid by the administrator of the estate, reimbursable to the administrator from the estate. If that did not happen, then it may be that a portion of them could increase the tax basis of the home as expenses incurred to perfect title.
Very informative. Thanks so much for disseminating this “life saving” info. I have a situation. My husband bought our home in California as married man with separate property. We thought best to inherit home to our children since I would continue living in that home without problem. Now he has passed.
I learned that home will have to go through probate regardless of will. Would it have been easier, faster and cheaper to have me take over the property as the widow instead of inheriting outright to our adult children?
I believe they will receive stepped up basis on the property but so would have been if I became the new property owner? (Is this even possible now?)
My question is: was it a good idea to inherit them rather than me? Can I still invoke a spousal property transfer regardless of will? I don’t want to make matters worse by invoking that right.
Since will states them as heirs could they be added in new title if I use the spousal transfer? Probate has not been filed yet.
Your husband’s estate will go through probate so the state can be sure the testamentary (“inheritance”) provisions of the will are carried out, which happens in estates above a certain threshold of value, not necessarily because of who the beneficiaries are, though there may have been a higher threshold in your state for property left entirely to a surviving spouse. Hindsight is worthless, but that said, what you should have done was put the property into trust and named the children as beneficiaries in the trust. That way, the property would have passed to them according to the trust and not according to his will.
It is possible that your state’s estate and probate laws allow the surviving spouse to contest the will and claim a set percentage of the estate as her own. That process would be done through the probate court, and the costs would likely be in addition to the costs of probate. It could also lengthen the time it takes to get through probate.
Thanks so much for the orientation. …..so now I know it will be best just to go through probate with will as is.
Do property taxes increase if there will be 2 names on the title and only one has lived and will continue living in that house? The other one lives out of state. Will the gift exclusion apply here for new heirs alike?
Whether property taxes increase or not depends on the laws of your state regarding inherited property. As for the “gift exclusion”, gifting laws are not applicable since this is an inheritance, not a gift.
My husband of 12 years passed away 16 months ago. Our principal residence house was only in his name and he left it to me in his will. We also had a house in Florida that was in both names. I recently changed my residency to Florida. The house that was willed to me was assessed at $450,000 which I believe is higher than it will sell for. Do I need to sell the house that was willed to me within two years of his passing to get a tax break? How much capital gains tax will I have to pay on this house if I sell it?
You will not have a gain on your principal residence home if you sell it for no more than it was worth when he died, since it received a stepped-up basis to the value at the date of his death. That is true no matter when you sell it, so there is no rush. The Florida house received a stepped-up basis to the value at his death for the half of the house owned by him.
Is the stepped-up basis automatic or do I need to retain the services of an appraiser?
You do not need to do anything at the time of the death in order to get the stepped-up basis on property you inherit. But when you sell the property, you will need to put down the amount of the stepped-up basis. So think about how you will establish what the value was at the date of death. Maybe you’ll use an appraisal that you got at the time, or have an appraiser do a “backward appraisal” when you sell it to say what the value was back then at death. Or ask a Realtor to give you a value.
Do you think I can claim an investment property loss based on following facts?
Husband just passed away in September 2020. We moved from CA to WI in 2015 and bought a new home (primary residence) in WI. However, we never sold or rented our CA home because husband wanted to occasionally visit CA. Husband each year would visit CA home 2 or 3 months. I never visited CA home more than 2 weeks in any year since moving out in 2015.
If we had sold CA home while husband was still alive, any loss on sale would have been disallowed on a married filing joint tax return since CA home would have been considered a personal residence (2nd home), not investment property, because he used it for personal use over 14 days a year and we never rented it.
However, since he died in September 2020 I’m now sole owner with a full step up basis. If I sell CA home in early 2021, I most likely will have a loss on sale primarily due to real estate commission (assume 2021 gross sale price equals Sept 2020 fmv step up basis). Since I never visited my CA home more than 14 days in 1 year since moving to WI, can’t I claim in 2021 a capital loss on selling the CA home since it was just investment property to me? Shouldn’t my husband’s time spent as personal use of CA home be ignored since he’s deceased now, and I as a single taxpayer in 2021 selling the home, only my visiting time should be considered? From my viewpoint, based on just my visiting time the CA home should be considered investment property, not a 2nd home personal residence. Thus, shouldn’t my “investment property” loss on CA home sale be allowed on tax return?
If you were holding this property to generate income from rents, I could see your argument. But that isn’t the case: it was held as a second residence, and it is not consequential who visited it when. A second home would be that even if you and he never set foot in it again. But do seek the counsel of a tax professional to see what they can tell you about the particular facts and circumstances in your case.
Hi, my husband passed in 2015. He had bought a home in 2002 for $120.000, before we were married. In 2012 we bought our current house and sold his house on a land contract. Buyer on Land Contract purchase house for $89,000 defaulted July 2020 and I ended up with it back with a $68,000. 00 bal. (owed at the time of land contract default). Home had no mortgage. I did 25,000 worth of improvements and the market much improved since selling on the Land Contract for $89,000. Home sold for $140,000 Oct . 2020. What do I need to do regarding capital gains? Both my late husband and I sold our primary residents in 2012 when we purchase the current home I live in.
At the point that you repossessed the home, you must make a computation of the new adjusted tax basis. You’ll need to consult a tax professional to determine exactly what that is, given all the facts and circumstances of the repossession. The gain on the sale of the repossessed property is the sales price less the cost of sale and less the new adjusted tax basis plus improvements made after repossession.
My mother and father own a piece of land (no home) that they paid $4k in 1986 for in Arizona. My father passed in 2006 and I had this property appraised at $85k. The property today is valued at roughly $125k and my mother is considering selling. There is no home on the land so the $250/$500k exclusion does not apply. My question is what capital gains would be owed if she were to sell today for $125k? Is $4k the basis or $85k +$4k = $89k? Thanks in advance
In community property states such as Arizona, if the spouses hold title in both names as community property, then it gets a stepped up basis to the value at the death of one of them. So assuming this was held as community property, the basis would be $85,000, the value at the date of your father’s death. The taxable capital gains are the sales price less the cost of sale less that tax basis. The tax rate depends on the taxpayer’s income, but quite likely is 15% federal. I do not know what the Arizona tax rate is on capital gains.
I cannot believe what my sister said is true. She and her late husband bought a four-plex in Hermosa Beach, California for $1,000,000…..When he died in 2018, the property was worth $6 million and was still being used to produce rental income….Upon his death they lived in the community property state and had always filed as married filing joint…But my sister bragged that her sharp lawyer found a community property loophole and payed “zero” capital gains on a $6 million sale. I cannot believe it, but my sister brags that it is so. Is it true?
It is common knowledge that federal law provides that real estate owned by someone who dies gets a stepped up basis to the value at the date of their death. That means that if it is sold at that value, there is no capital gains tax to pay.
California is a community property state. In most community property states, property held in the name of both spouses as community property receives the stepped up value at the date of death, since it is considered 100% owned by both spouses. So the entire property gets a stepped up basis.
Obviously, this isn’t a loophole, it’s common application of California state law to a long-standing federal law. But if your sister wants to show how smart she was to find this commonly known law, why not let her?
My parents owned a home together since 1995 for 55000 in Florida and now the house is worth 200,000, if she sells the house for 190,000 and my dad passed away on 2007, this was their primary home until that year, my daughter has live there. If she sells this house to her how much will be the capital gain tax after like 50,000 expenses in remodeling?
The gain will be the sales price of $200,000 minus the following: the cost of sale, half the value at the date of your father’s death (if he owned half of it then), half the original cost of $55,000, half the cost of any improvements before 2006, and the cost of improvements after 2007. Once you compute that gain, if your mother lived in the house for two years of the five years prior to sale, up to $250,000 of that gain will be excluded from taxation.
Thank you, as always.
Hello Gina
When it comes to step up basis, is family home treated different from a rental income property? I understand the appraisal for the step up basis can be done any time for the family home prior to sale, but is there any reason why it should be done sooner for the income property?
Thanks.
DP
Certainly real estate can be appraised “backwards” to ascertain a value sometime in the past, but I believe that contemporaneous appraisals that are done as close to the date of death as possible are more convincing evidence of value. And you should definitely establish a contemporaneous value for income property you inherit so you can use that value for depreciation purposes.
I’m so sorry to ask one more but my mother in law thought her CPA said she had to file the appraisal for step up along with the report of death in 2919 on her 2019 tax return. Is she conflating 2 different things perhaps?
Your mom should definite do what her CPA says she must do, but I think that perhaps she misunderstood the CPA. The only requirement I know about is to attach a report of tax basis to the Form 706 Estate Tax return, but that return isn’t due unless the estate exceeds $11 million, which I’m guessing it doesn’t in your mom’s case.
Sorry for a basic question but if widow decides not to sell immediately after spouse’s death, is there a deadline by which she must claim step up, or is it enough to claim it at time she goes to sell the home, even if it is years later?
She may claim it as her tax basis when she sells the home, even years from now.
Thanks. I guess that makes sense in that it is only then that the issue of a gain arises? Of course, the longer she leaves it, the more approximate the value, I suppose.
Ideally, she will establish the value at date of death soon after that death, which she can do by asking a real estate agent for a market analysis or through appraisal. If she fails to do that, later on she will have an appraiser do a historical appraisal later to determine the value as of the date of death. And the value when sold is not approximate, it is the true value that a willing seller will pay a willing buyer, which is the definition of value.
Your service here is very important – thank you do much for it.
If deceased spouse was nonresident and surviving spouse is US citizen/resident, does it make a difference for step up claim or for any IRS filings on death? I understand Form 706i must be filed within 9 months of death but this was not done as intestate administration has not yet issued overseas and we only just found out about this as part of tax season in US. Are penalties likely very high?
This is a specialized area, and I do not have sufficient knowledge to answer your question — sorry. I suggest you ask a tax specialist with specific knowledge regarding this subject matter.
OK, thank you. understood.
Hi. I understand an appraisal is needed for the residence of the widow to claim the step up basis (is it only for the main residence or does it also cover investment property?). Can any licensed appraiser be used? Or is one approved by IRS needed? Also, do they need access inside the property or do they do it from drive bay or online street view and comparable stats, etc? Not sure how to go about finding one so grateful for any guidance.
Thanks.
DP
You may use any means that establishes the value at the date of death for real estate owned by the deceased. That could be a full blown appraisal, or a market value analysis by a knowledgeable real estate agent. You would have to check with the person giving you the value as to what access they need.
Thank you.
How is the basis calculated if the property was bought together as land only and then built together? My husband died after the home was fully constructed.
Thank you,
Dusne
The tax basis before his death would have been the cost of the land plus the cost of the construction. Part or all of the property received a stepped-up tax basis to the value at the date of his death, if that exceeded the cost tax basis.
Original property was inherited in the early 70s– so we do not have a purchase price. Husband died 20 years ago and the appraised amount then was 500,000. Widow sold the house recently and after expenses received 800,000. How do we figure out the capital gains? Thank you.
If the property was held as community property or in husband’s name alone when he died, the tax basis would be the value at his death, $500,000. If not, then the tax basis of the inheritance of his half is $250,000, and the tax basis of her half is 50% of the value of the property when it was inherited in the early 70s.
Hello
My mother in law was widowed early last year. She owns her home jointly in California with her husband since the 1980s as her main home.
I understand she gets a stepped-up basis when she goes to sell but is that for only half the value? She pays on the full gain for the other half?
Is this separate from or related to the rule about selling within two years of his death? I am having trouble seeing where this fits in. Ideally, I think she’d prefer not to sell so soon but she needs to know the pro’s and con’s.
Thanks for this website. It is a great resource.
If the home was community property, then both her half AND his half received a stepped up tax basis to the value at the date of his death. In addition, when she sells, she can claim a capital gains exclusion of $250,000. She could also claim his $250,000 exclusion if she sells soon after his death, but given the stepped up basis plus her $250,000 exclusion, she probably doesn’t need to claim his exclusion, so she won’t be hurt by holding onto the property and selling sometime in the future.
Many thanks. So, I will ask her to run the numbers with her CPA. Will she gain his $250k exclusion (in addition to her own and the two step ups for each half) only if she sells within 2 years of his death?
Yes, to claim his exemption, the home must be sold within two years of death.
Thanks. I guess that only matters if increase since death exceeds $250k within 2 years, which I imagine is quite rare. Does that make sense? sorry for the follow up. Your site is a great service.
Not sure what “that” is referring to, perhaps the deceased spouse’s 250,000 exclusion? Yes, what you said makes sense.
My husband died last year (8 months ago). I have now decided to sell our home which we owned and lived in for the last 20 years. We owned the home jointly and our wills leave everything to the surviving spouse. I want to know several things: 1) Do I have to take his name off our mortgage before I can sell:, 2) Do I have to take his name off the deed before I can sell?, and 3) Will I have to pay capital gains on the proceeds which should be about $200,000?
You will not need to take his name off the mortgage — paying it off through escrow will extinguish it. Since the home was left to you, it is likely that the escrow company or attorney who handles the sale will cause the property to be titled in your name alone before the sale, to fulfill on that provision of the will. At least one-half of the property received a stepped-up tax basis to the value of the home upon his death, and possibly the full property did, depending on how title was held, and whether you live in a community property state.
The proceeds from sale have nothing to do with the taxable gain. To determine the taxable gain, you will take the sales price, subtract costs of sale, and subtract your tax basis, which will be either the value at the date of his death or else half the value at the date of his death and half the cost of the property and improvements. From the resulting gain, you can subtract $250,000 since it was your principal residence. So I doubt there will be any taxable gain.
When a spouse inherits a house which is 50% rented and 50% used for personal can the stepped up basis be used for depreciation? Are there any statements which must accompany the tax return?
If the property received a stepped up basis, then that increase can be depreciated. I don’t know what statements, if any, must accompany the tax return.
Hi my mom sold her house in a revocable trust for 399,000. They bought it in 1969 and he passed on November 19, 2010 (estimatesd value of house at his death about 140,00 plus improvements over the years. New roof 3x’s, new windows, added central ac and later central heat, etc) Will she need to pay capital gains? She lives on social security and does not file taxes yearly. Will she need to file because of the sale?
Also what happens if she passes away (91 years old on hospice) before tears end?
If she passes away before year end, then the rules would be the same as I stated, and if she were required to file a tax return the executor of her estate or administrator of her trust would file a tax return for her and sign it as executor or administrator.
If I take the sales price of $399K and subtract the value at her husband’s date of death of $140K, I get $259K. She can exclude up to $250K on the sale of her residence, and I’m guessing the costs of sale and the costs of improvements since her spouse’s death are higher than that, so no, she won’t owe capital gains taxes. If she signed a form in escrow that said she didn’t expect to owe taxes, then she won’t receive a 1099 form showing the sales price of the home, and she won’t have to report the sale on a tax return. If she didn’t sign that form, then she will get a 1099 form and will have to report the sale (but won’t owe any taxes for the reasons I stated).
Ginita, I needed to thank you for your advice on Capitol gains. The information you shared with me, gave me the confidence in myself to stand up to my tax preparer when she showed me owing $8,000 in Capitol gains. Because of your advice, I told her I should owe $0 in Capitol gains. She bristled a bit, but said she would check into it. Turns out….I owe $0. I cannot express how grateful I am. You are so right….a man is not a financial plan. My husband died…..leaving me at 57, to take care of finances for the first time. I am on a mission to educate myself and get to the point of confidence in making my own financial decisions….until I get to that point….
I have one more question for you and I am hoping you can advise me….my husband had rolled over the majority of his 401(k) into an annuity with Nationwide. But after that, he continued to contribute weekly to his 401(k). So upon his death there was money that needed transferred into an account in my name. So I had the gentleman at Nationwide that my husband purchased the annuity from, help do the paperwork to get this money transferred. Two weeks ago I received a check in the mail for the balance of his 401 (k) minus taxes. The paperwork either didn’t get filled out properly or in the required time frame. The balance in the account was about $18,000. Balance of the account minus taxes was about $14,500 My tax preparer told me I have 60 days to come up with and replace the taxes that had been taken out and deposit it and the check into an IRA. She said if I don’t I have to claim it as income for 2020 and I will receive a penalty on my taxes for early withdrawal. My question is this…. taxes were approximately $3,500…. what should I do…. come up with and replace the taxes and deposit it? Or just take the penalty? It has already cost me $3,500 in taxes that I can’t get back correct? The tax preparer told me to ask the Nationwide rep that helped me, how to get the tax money back. She seems to think he should be responsible for it?? So…do I just deposit the check in my money market for now and take the penalty? Or do I take the hit with the taxes, come up with the extra money and deposit it into an IRA? Thank you so much for your invaluable advice!
OK, consider that it might be time to get a new tax preparer/adviser. You do not owe an early withdrawal penalty on distributions made to you from a 401(k) on account of the death of the employee. Refer your tax adviser to Internal Revenue Code Sec 72(t)(2)(A)(ii) – it is very clear there.
If you replace the taxes and deposit the $18,000-ish funds into an IRA in your name within 60 days from the date of distribution to you (which likely is earlier than the date you received the check in the mail), then that will not be income on your tax return. You will be able to claim the $3,500 they withheld for taxes as withholding on your tax return and credit it against your taxes on the return, and that will likely result in you receiving a refund of most or all of the $3,500 when you file your tax return next spring.
If you take the $14,500-ish that you received and put that into an IRA in your name within 60 days, then that will not be income on your tax return. But the $3,500 will be income on your tax return, since you didn’t replace that. The taxes on that $3,500 will be $1,000 or so, and the withholding was $3,500, so you’ll still get a refund of all or most of the $2,500 difference.
Once again, Ginita, thank you so much for your advice. You always explain things so thoroughly and I and I come away with a good understanding. I feel like I am surrounded by people that don’t know what they are doing….hence why I went in search of and found YOU. It is frustrating and frankly a bit scary to think that my finances and retirement are in the hands of people I don’t feel good about. My husband fully trusted both my tax person and the person at Nationwide…. I was always there to sign the paperwork without much thought, because I trusted my husband, who was a smart man and he loved numbers and calculating for retirement etc. But, now that I am in charge of my own financial future, I am finding these people to be inadequate. I have gone to the library and checked out tons of books on retirement and taxes etc. and will be reading everything I can get my hands on. I searched online and was lucky enough to to run across your website, of which I intend to read every article and blog on here, in an attempt to educate myself. I will once again follow your advice…on my to do list……find a new tax advisor and a new person to manage my retirement account. Thank you thank you!!
Good Morning I am sure you must have answered this previously. We have been in our house for 26 years. My husband passed 02/11/11 at the time of death only his name was on the deed. We did have a quick claim previously notarized adding my name on in case something ever happened. This was filed with the county after his death. Now in 2019 I sold my home. My question is since I wasn’t on the deed until after he passed wouldn’t I use the stepped-up basis or Date of Death value? I have no idea how much it was originally purchased for so many years ago. Also since I didn’t know I had to have date of death value do I find an appraiser to determine that for my income taxes? I know there is $250K exclusion any help would be appreciated..
Thanks
At the time of his death the property tax basis stepped up to the value at the date of his death. So your tax basis is that amount plus the cost of any improvements since then. You can ask an appraiser to do a backward valuation (there’s a technical name for that but this gets the point across), or you can look at the trend for the property on a website such as Zillow and apply that percentage change to the current price/sales price to arrive at the value at date of death.
My mother did not receive a 1099-s form. In her copies from the closing, there was a 1099-s information request form addressed to the title company, which I would figure is to let them know her ssn. I have contacted her closing attorney to ask if she was issued a 1099-s and he said it was in the papers at closing. I showed him the form was only an information request. I am not getting much help. I read not to ask for one if you didn’t receive one, but I am concerned we just didn’t receive it. She won’t have to pay taxes regardless (because of the inherited value of my fathers half of the house plus home improvements) but I would rather not open it up to review if unnecessary. Should I continue to pursue the tax form? Thank you for the help.
My mom bought her home for $16K now it could sell for $400k that was in the 60’s we switched the to are name it’s been 4 months my wife and I make under $37000. Do get a tax break on capital gains or do we get hit hard because of living in the home for less than 24 months. Can you give me any advice also we want to buy a home in Michigan.
In order to claim the $250,000 exclusion on the gain on sale of your residence, you need to have listed there for 2 of the prior 5 years. If you don’t, then you will have to pay tax on the gain when you sell it. Since your income is so low, some or all of the gain may qualify for a zero tax rate, and the rest will be taxed at a 15% federal tax rate.
Hi Ginita,
This question pertains to my mother and father.
My father owned there primary home since 2006 in CT. He passed in July of 2018. He was the only person on title and mortgage. My mother is the executor of his will and I don’t believe she has a right of survivor-ship to the property. Right now she is in contract for the sale of the home in April of 2020 and shes looking to buy another home. I’m not sure what the value was at his time of death if was to guess it was 200k (Thats what they bought it for in 2006) and shes having it sold for 238k, mortgage still has about 155k left on it. So with step up its 200k, Gain is 238k (38,000 gain) then shes buying another home to downsize at the same time 150k to 200k. Probate is almost done, the sale of the house is the last step
Does she qualify for the married tax exemption of 500k since they filed married jointly for all the years prior? even though she wasn’t on mortgage or deed of the home in a non community property state? Also her income is 50k a yr.
Will she be incurring a capital gain tax or any other tax, is she exempt?
Your answer will be greatly appreciated, Thank you so much!
If the home is sold within two years of his death, then his $250,000 exclusion can probably be claimed.
Great site, love your easy to understand responses.
My father-in-law passed away this past October and at the time he owned a rental property. The deed of the property is titled under his trust where my mother-in-law is beneficiary. She is vehemently telling all the children that she won’t have to pay capital gains because she never owned the house, only her spouse did. She also says she confirmed this with a lawyer. While I doubt the government would let that slide, is there any truth to what she is saying?
Also, seeing as this was a rental property was a depreciation schedule required? (if so I need to find history of it)
Thanks and have a great day.
If the house has now passed to her as the beneficiary, then she will need to report the sale of it on her tax return. If the house is still owned by the trust and the trust sells the house, the trust will have to report the sale on its tax return. You are right, the government will hold the rightful owner responsible for reporting the sale and paying any taxes due (though the house likely received an increase in tax basis to the value at the date of the deceased person’s death, so the taxes won’t be much and possibly zero if it is sold for the same as the value at date of death). On your father in law’s tax return, he likely reported the income, expenses and depreciation on Schedule E. So that’s where you can find the history. The accountant has the depreciation schedule, or the program used for preparing the return can produce it.
Looking for guidance. Bought a home in April 2019 for 250,000. My husband unexpectedly died in July 2019. I could not stay in the house and sold it in September 2019 for 357,000. So we only lived there for 5 months. Am I figuring this right…… my husbands stepped up value would be 187,500?? That is half of the 357,000. And my half would be based on the 250,000 we purchased the home for….125,000??
So…. 187,500 +125,000=312,500. Then the sale price of 357,000-312,500=44,500. So am I correct that I will owe capitol gains on $44,500?? So approximately $ 6,675??? If I’m in the 15% bracket
Help!! Thank you !
That is correct, except that the tax basis for his half is 50% of 357,000. And since your holding period and residency period was cut short because of the subsequent sale due to his death, you should be able to claim a prorated portion of the $250,000, exclusion that is 5/24 of it (5 months divided by 24 months (two years)). And it seems to me that on a joint return for the year of death (2019) you would be able to claim an identical exclusion for him. Check with a tax adviser to be sure. And also, be sure you have the purchase price correct – you say the home went up 42% in just five months. If you increased the value by making improvements, be sure to include the cost of those improvements in your tax basis computations.
We purchased the home from a friend at below market value. So the purchase and sale prices are correct. Could you please explain the prorated portion and and the exclusion a little more? Sorry!! I am not exactly sure why that means. Thank you so much for your help.
If the exclusion is $250,000, and you have lived there only 5 months, you can’t claim the full exclusion. You can claim a prorated portion, that is: 5/24 of it (5 months divided by 24 months (two years)). The fraction 5/24 is 21%, so you can claim 21% of $250,000 which is $52,500. That means you can exclude $52,500 of the gain from taxation.
So if understand correctly…..my husbands stepped up value is half of the 357,0000=178,500. Mine is half of the purchase price of 250,000=125,000
178,500 + 125,000=303,500. Sold the house at 357,000-52,500 for 5/24 of exclusion=304,500.
178,000+125,00=303,500. So…..304,5000-303,500= 1,000
With the exclusion included does this seem correct?
Thank you so much for your advice. This has been such a hard time in my life and finding answers hasn’t been easy. You have given me more help than I have been able to get from my realtor, investment person, or a CPA. Thank you so much!
Dear Ginita,
Thank you for all advice you give to people and I hope you can help me as well.
My husband and my youngest son died very unfortunately. I solely have mortgage on the house now. I have one child left my older son. I want to put my son as joint tenant so he can avoid probate in the future. We are wondering if that’s a good route instead of creating will/trust.
Main question about future capital gains tax if something happens to m? and my son will need to sell the house right away.
Initial price for house was $400,000 and I solely took mortgage on it and my name is only on the deed. Lets say I add my son to be co-owner as joint tenancy now. Let’s assume house evaluation will be $600,000 at time of my death.
I understand my son’s cost basis will be $500,000 ($400,000/2 + $600,000/2 = $500,000). If he sells for that price of $600,000, then his base for capital gain tax will be $100,000 ($600,000 minus $500,000). Am I correct?
I understand that if will/trust would be implemented, the cost basis will be stepped up to full $600,000 evaluation at time of death and therefore if sold for that amount, zero base for capital gain tax.
But creating and then implementing trust can be complicated and costly. Our estate is small and simple. So we are wondering if joint tenancy can be good simple solution for now.
Assuming the house is considered my primary residence and also it’s considered primary residence for my son and his wife for last 2 years.
1) Will my son be able to claim $250,000 tax exemption? If yes, can he claim it if sold shortly after my death? Or will he need to live another 2 years in the house after my death in order to claim it?
2) Same question as above #1 only about $500,000 marred couple exemption for my son and his wife since he’s married.
Those above are most important questions
Third question if you can help answer would be big bonus.
3) Lets say house goes up in price up to $700,000 while I’m alive and I decide to sell it. I understand if I’m sole owner, then base for capital gain tax will be $300,000 ($700,000-$400,000). Even if I claim exemption of $250,000, I will still need pay tax on $50,000. What if I add my son as joint tenant, will he be considered co-owner and we each will be able to claim $250,000 exceptions?
thank you
Nadia
I get your concern about taxes upon your death, especially given what has happened in your life. But it sounds as though you are fairly young, and likely will live a long time more, and I don’t know what the tax laws will be when you die. If they were the same as now, there would be a step up in basis to the value at your death if the house is in your name, and the house will pass in accordance with your will. If you do not have a will, it would pass in accordance with the laws of your state. A will is easy and inexpensive to create, you can do it online at relatively small cost. I don’t know what the cost of probate is in your state – but if it is high, then a trust may serve better than a simple will so that it bypasses probate. I’m guessing you’d only do that if you’d save money by doing a trust.
If your son has owned and occupied the home for 2 years when he sells it, then he would qualify for the capital gain exclusion. If not, then he won’t. So the answer to whether you can add your son to the deed and then sell it, the answer is yes, once he’s owned and occupied it for two years. His wife can allow her exclusion to be used for the sale even though she hasn’t owned it upon sale, as long as she lived there for two years. All that said, I don’t know all the details of what you are dealing with and how the law will affect you, so be sure to talk to your own advisor before you do anything.
Thank you so much Ginita
My Mom sold the family home to my brother and me for $1 over 17 years ago but kept a Life Estate. So technically, I guess, she remained the “owner” until she passed. If I am correct, when she passed, it auto-transfers (I mean I have to go and get the new deed) to my brother and me.
With that said, I’m assuming what you said above applies…. The house gets a stepped-up value to her date of passing (a few days ago) and if my brother and I sell it right away, the only capital gains would be the increase of value that occurred between the stepped-up value and the time of our sale to someone else. That should be little or nothing leaving us with no capital gains tax?
If the house was in her name when she died, it will receive a stepped up basis to the value at her death. If it was in your names, then it won’t, I don’t think. But check with an attorney to be sure — I’m not one.
I’m currently a widow, husband died in 2006. In 2019 I sold a rental house that he inherited upon his mother’s death in 2004. Neither him nor I lived in the house, it has always been a rental. I’m trying to understand my position regarding what capital gain tax rules would apply to my situation?
You will owe federal tax at 25% on depreciation claimed since 2006, and the rest of the gain (the sales price less value in 2006) is taxed at federal capital gains tax rate, which is 15% for most people. You may also owe state income tax on the sale.
WOW, great stuff, but still need one clarification as to the “community property step-up” versus if the primary residence was titled in a family trust as opposed to as husband & wife as community property…
If the assets were community property before they went into the trust, then they are still community property.
My mother sold her home in 2019 and my father died in 1994. How would I determine the value of her home at the time of his death? Is this a costly fee?
You can ask an appraiser to do a backward appraisal – I forget what it is called, maybe a historical appraisal. You’ll have to ask what the fee is. You possibly can get a real estate agent to run comps as of 1994 – I don’t know if they can, or if there would be a charge.
Thank you.
My mother did not receive a 1099-s form. In her copies from the closing, there was a 1099-s information request form addressed to the title company, which I would figure is to let them know her ssn. I have contacted her closing attorney to ask if she was issued a 1099-s and he said it was in the papers at closing. I showed him the form was only an information request. I am not getting much help. I read not to ask for one if you didn’t receive one, but I am concerned we just didn’t receive it. She won’t have to pay taxes regardless (because of the inherited value of my fathers half of the house plus home improvements) but I would rather not open it up to review if unnecessary. Should I continue to pursue the tax form? Thank you for the help.
My father-in-law passed away a couple days ago. He and his wife owned four properties together; one primary home, a second home, and two rental properties. As us children are trying to set up my mother-in-law for her future financially and physically, how does she pay the least taxes when selling the homes. I understand the primary residence step up scenario mentioned above and the two of the last five years to make it a primary residence. My mother-in-law will not move into each home every two years to make each one her primary residence. Is the best plan to sell one home a year in vice selling all in the same year so as to not raise the her overall tax bracket that year? Does the step up rule apply to all four homes?
The step up basis rule applies to all the real estate, to the extent it was owned by your father-in-law at the time of his death or held as community property with his spouse. So there shouldn’t be much in capital gains taxes to be paid, no matter when she sells the properties.
Hi this has been an interesting blog. I hope you can help me. I live in California my husband and I owned a rental property for many years it was purchased for $80,000. It is now worth about $575,000. He died 6 years ago. He lived in the house when he died. We were separated but still married. Our children have been living in the house since he passed. I would like to sale the house soon. What would my tax consequences be? If I didn’t sale and rented it at full market value a for a few years, how would my tax consequence change?
Thank you, ivy
If the house was owned as community property at the time of his death, then it received a step-up in tax basis to the value at the date of his death. If it was not owned as community property, only his half would receive a step-up in value. If you sell it now, you’ll pay tax on the difference between the sales price less cost of sale and the tax basis. If you rent it out, you’ll pay tax each year on the net rental income less allowable depreciation. If you rent it out and then sell it, you’ll reduce the sales price by the cost of sale, the depreciation you claimed while it was rented and the tax basis. The portion that is from recaptured depreciation will be taxed at a federal rate of 25%, and the rest of the gain will be taxed at whatever federal capital gains rate applies, probably 15%. And there may be state taxes as well, depending on the laws of your state.
Thank you so much for your reply. I just
Seen it. I understand everything except what would happen if I rented the house for a year or two then sold it. Would I still be able to take advantage of the step up basis we do live in a community property state. Thanks, Ivy
All property that is owned at the date of death gets a stepped up basis forevermore. So that includes rental property, homes, raw land, everything.
What kiinds of improvements are eligible? Painting? New carpet? Appliances? Is there a lost somewhere?
IRS Publication 523 outlines the definition of a capital improvement. Examples of residential capital improvements include adding a bedroom, bathroom, or a deck. Other IRS approved projects include adding new built-in appliances, wall-to-wall carpeting or flooring, or improvements to a home’s exterior, such as replacing the roof, siding or storm windows.
Husband dies in 2000 . House and land was in name of husband and upon death it was transferred to wife. How does this transfer of property affect capital gains?
Also–Nothing was ever done to figure out the new stepped up value of the house in 2000. No appraisal or anything. Now that it is 2019 -we have the place for sale. How do we determine the stepped up value from 19 years ago?. Also does the widow also get the $250,000 exemption upon selling? Is there anything we need to do before selling the house? What happens if we cannot find receits for improvements done to the house? Is there a list of improvements that elgible ? Painting? Roof? New lighting fixtures? New driveway? Landscaping? Thank you.
If you don’t have information about the value in 2000 at the date of death, you can ask a real estate agent or appraiser to do a retroactive valuation based on sales prices at that time. As for improvements, make a list of everything that was done, and what the improvements cost. Base that on receipts where available, and otherwise, your best estimate.
My husband of over 40 years died in 2016. I owned the house we lived in since the 70’s and have a beneficary deed if I died first the house would pass to him. My house is now worth around $500,000. If I sell the house now, do I have to pay capital gain taxes on the full price of the home as a single person.
Since he did not own the house at the time of his death, then it likely isn’t part of his estate and doesn’t get an increased tax basis. You can check with a tax accountant or attorney to be sure. So if you sell it, you will pay tax on the sales price minus selling costs and minus original cost and the cost of improvements.
I have a similar question my wife was killed on June 30 2016, I have purchased a home in mesa Az for 485000.00 and I sold mine for 649888.00 closing dates mine sept, 23 new one sept 25 the median cost of homes in my area is around 590,000. 00 for homes sold 30 days before and 30 days after her death can that be the basis or is there another way the I R S wants you to get the step up value. I have done a lot of work on this home and have recites, on your calculations what do you think I may owe in capital gains without the upgrades like solar ,sunroom etc. in California
Since I have lived here from June 16th 2016 date of my wifes passing till sept 23 2019 I will not be able to get the step up bases. for the last year and half I have planed on moving My home needed a lot of work done on it before I could sell it. I’m so confused I am so confused can you explain what I may owe the IRS , thanks
You have lived in the home for 2 of the 5 years prior to sale, so you are eligible for the $250,000 gain exclusion for the sale of your principal residence. And since your gain will be very little, according to the facts of your previous post, you likely won’t owe any income tax on the sale.
The median value of homes in your area doesn’t speak to the particulars about your home. Ask a real estate agent to give you an estimated value of your home as of 6/30/16. That will be your tax basis at the time of her death, and you can add to it any improvements you have done since then. If you sold the home for $650,000, after subtracting the costs of sale, costs of improvements and value at the date of her death, there likely will be little or no gain to be taxed.
My husband and I purchased a home in 1994 for $220,000. He died in 2007 the house is now worth $550,000 what would my capital gains obligation be? How do I find out the value of the home in 2007?
You can ask a real estate agent to get you that information, or have it appraised at that date. Your gain would be the sales price minus the cost of sale and minus the tax basis, which may have been stepped up to the value at the date of his death if he was the full owner of it. If you owned half, then it is possible just his half received the stepped up tax basis, and your half retained the tax basis based on the original cost plus improvements.
What does stepped up value mean ?
My husband and I purchased our home in Ca in 1999
For 450,000 it’s worth 1.3 now and we want to down size to a smaller house in the same area . It is community property as stated in trust . Also we have done 200,000 in upgrades to the home , can you help me figure out what our capital gains might be ?
Thank you
When you sell a property, you pay tax for the difference between the sales price and the original value, increased by improvements (that’s called the tax basis). But if the property owner died while owning the property, then the value at date of death is substituted for the original value, generally resulting in a higher tax basis and a lower gain. And since both you and your husband are still alive, that has no bearing on your other question.
If you were to sell your current home, you’d pay tax on the sales price, minus the cost of sale, and minus the original cost and cost of improvements. Since it is your principal residences, each of you can reduce that capital gain by $250,000. So the net result will be very little taxable gain, and therefore little tax.
My husband passed 12/2018. We have been in our home in Tennessee for 34 years. I am thinking about selling it next year. But he also owned, with his sister, property deeded to them before she passed away with a lifetime estate. She passed in 2016. I inherited these two pieces of property, along with her, and am now going through probate. Once probate is complete we intend to sell one of the pieces of property he owned with his sister, and maybe the other sometime in 2020. How does all of this affect taxes for me? Will my half of the property be stepped up?
Just to clarify regarding the two pieces of property my husband owned with his sister, it was their mother who passed away in 2016. His sister is still living.
It is likely that only his half of the home got a stepped up basis, if you owned it jointly. The property he inherited from his sister would have gotten a stepped up basis in 2016 when she died. And you get a stopped up basis when you inherited it from your husband.
I did not have any ownership of the property. I tried to clarify that his mother is who had died. His sister is still living and he owned the property with her jointly as tenants in common. I am his heir. Going through probate now due to these two properties. Their mother deeded the properties to her children in 2016, before she passed away. She is who passed. The sister, whom owns half of these two properties is still living as well.
The half you inherited from him likely received a stepped up basis.
Pingback: Cutting Your Tax Bill When Selling a Widow's Home - III Financial
There is no timeframe in which she can invest the proceeds and escape the tax. Those rules changed in 1997, and now gain in excess of $250,000 is taxable, period.
If she sells the home, she’ll be taxable on the gain less $250,000. If she gifts the proceeds to you, she’ll need to file a gift tax return, but gifts are only taxable if they exceed $5 million over her lifetime, which isn’t likely.
A sale is triggered by transferring ownership to someone else for fair compensation. A gift is triggered by gifting property or funds to someone else without fair compensation. Whose name the mortgage is in has nothing to do with who owns the house. If she buys a new home with the proceeds and puts your name on the home, she will have gifted you half the value of the home if you become half owner.
Ms. Wall,
1. My house was not appraised when my husband died in 1989. How can I find the approximate price at the time of his death? Would IRS accept a note from a real estate agent or does it have to be from an appraisal? Are there any other options?
2. The house improvements and numerous additions were done around 1984. Rented the house 1991 and the kitchen and bathrooms were remodeled few times to make it comfortable for tenants. Would only initial improvements can be deducted from capital gain or each time the kitchen or bathroom have been upgraded?
Thank you,
Jill
The IRS may require a retroactive appraisal if they challenge your figure, and the odds of that are pretty low. So for now consider getting a retroactive analysis from a real estate agent. You can always get an appraisal in the unlikely event you are audited. And you can add all upgrades made since that valuation date of 1989.
My husband & I bought a house in New Mexico in 1980 for $163,000. We made $209,000 in improvements over the years. In 2015 we moved to CA to a smaller house, but we kept the NM house and let a daughter live there (for no rent). We became CA residents in 2015. My husband died 2 years ago, June 2017. The NM house had a stepped up value of approx. $600,000 when my husband died. Now I’d like to sell the NM house. I am uncertain about the exclusion amount and what the taxes might be since I have been in CA for 4 years, but previously lived in the NM house since 1980. Your insights are greatly appreciated!
Your tax basis is the stepped up value of $600,000. It doesn’t sound as though you would be eligible for the exclusion for the sale of your principal residence since it wasn’t your principal residence for the past 4 years for either one of you.
Hi. Came across this page, seems very helpful and appreciate your input for everyone’s issue here.
My mom is selling her home. Bought it for $59000 back in the early 80’s. She is selling the home for $470000. (Less agent fees, closing fees, etc etc — I expect her to get a net check of about $440000). Resulting in a net profit of $381000. We should be closing in 60 days
When it was first bought in 1981, my mom and dad owned the home together. In 2010, full ownership was transferred to my mom. My dad passed away in 2014 and my mom did not remarry.
Fast forward to today, we are planning to buy a new home together and planning to use the proceeds from the sale as a down payment.
a) What amount would my mother be taxed on if she is widowed? (I’ve read about many tax exemptions and I know based on your marital status, you can claim $250k if you’re single, $500k if married. Not sure about if you are widowed)
b) Approximately how much taxes would she expect to pay? If this helps, she earns less than $35k a year strictly from only social security, 401k payments and pension payments.
c) Any other exemptions she can take advantage of to reduce the tax hit?? I know she can take certain exemptions like home improvement throughout the years, but those receipts are long gone.
Any advice you have would be great and I thank you in advance.
She will pay tax on the gain, less a $250,000 exclusion since it was her principal residence. She should reduce the gain by any improvements made over the years, even if she doesn’t have receipts. If it makes sense, take a picture of the improvements to be able to show they were done if there are any questions. The tax rate for capital gains is generally 15% federal plus whatever her state taxes are.
Thanks! Just some add-on questions —-
Is there a timeframe where she would have to utilize all the proceeds for the purchase of a new home? I’ve heard from people telling me she essentially has 45 days or the end of the year to use the proceeds towards a new home to avoid being taxed… not sure if that is true or not.
Also, she’s contemplating on no longer wanting to be on the joint mortgage with me on the new home. (She doesn’t want to have the new home in her name) So, she’s essentially giving me her net proceeds as a “Gift”. Does this mean she would be taxed on the gain (less the $250k exclusion and improvements) AND pay a gift tax?
In your opinion, to avoid the most tax hits — would it best she stay on the mortgage application or she’s ok with being removed from it?
Any other advice you can provide would be great.
Thanks again in advance!
My husband died 4/3/19. We purchased our home 4/5/18, so we’ve been here less than 2 years. The property will sell for $620,000, but we purchased for $537,000 and we put 20% down ($107,400).
With a $83,000 profit and occupancy under 2 years, what can I anticipate? Does equity/down come into play or just profit above initial sale/value?
The home is in Nevada.
Thank you.
If you are selling because your spouse died, then you can claim partial exclusions. So if you were in the house for 1 year instead of 2 years, you can claim an exclusion of 50% of $250,000 (1 divided by 2 years) rather than the full amount. And it is also likely that the property got a stepped up basis to the value on his death, so either way, you won’t owe tax.
I live in Los Angeles, CA. Husband and I purchased home for $70,000. in 1970 and he passed 18 months ago. I now want to sell as it is too big, memories,etc.
I’m so confused with all the tax issues. If I sell for $1.2 million, I am 72 years old, I have income of $25K a year, will I owe taxes at all? Do I get the married exempt $500.K? I read if income is less than $30K I do not owe any capital gain taxes is that correct? If Not, what is the tax due at sale?!? Please help me understand this. Thanks, Erica
If you and he owned it as community property, it gets a stepped up basis to the value at the date of his death. If it has gone up in value since then, you can offset that gain with your $250,000 exemption and also his if it was sold within 2 years of his death. So it is likely that there would be no taxes due. If you and he owned it as joint tenants, I believe only his half would get the stepped up basis. So you’d owe taxes on half the gain less the cost of sale, less your $250,000 exclusion. And since a surviving spouse may exclude up to $500,000 of profit from the sale of the principal residence if it occurs within two years of the spouse’s death, if the gain were within that time period you could take another $250,000 exclusion for him. So if the sales price after cost of sale were $1100,000, and his half of the property got a tax basis increase to $600,000, you’d owe tax on $500,000 less your $250,000 exclusion, and less his if that applies. So the net taxable gain would be zero. So it would be best to get it on the market so it sells within the next six months.
My husband and I purchased a home in Nevada in 2002 for $232,000, joint tenants with right of survivorship. He died early 2005 (high point of real estate market here). I’ve put some improvements into the house and also claimed a home office deduction as I’m self-employed. I would like to sell this year, presumably in the neighborhood of $450,000. My questions are:
1) I realize this doesn’t exceed $250K profit, but how do you determine the value on the date of death without an appraisal in case it sells for more? Zillow or something?
2) I (unfortunately) am using the Affordable Care Act this year only and can’t bump my income at all without incurring significant increase in premium. Does a home sale affect Modified Adjusted Gross Income?
3) Does having taken the home office deduction for all the years I lived here somehow factor into figuring gain on the sale?
Thanks!
You can have a real estate agent research what homes were selling for in that neighborhood around the date of death, or have an appraiser appraise it at that date. I believe that capital gains are included in MAGI. And the depreciation you claimed on the portion of the home that was used as a home office does not qualify for the $250,000 exclusion, and is taxable at a 25% federal tax rate, plus whatever state taxes you may owe on it.
Thank you very much for your reply. I guess I’ll sell in January!
My husband of 39 years died 6 yrs ago. We owned a home held as community property. We bought it for 200,00 and stepped up value is 1,690,000. We had improvements of 113,000. I sold the home in 2018 for 2,500,000 with 350,00 selling expenses.
How do I figure gain and take 250,000 exclusion?
Lillian
Here’s what the IRS says: Use Form 1040, Schedule D, Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return
Ok what happens if the house is deeded to the trust. Does the step up basis still apply. House is in Illinois cook county
If you have a revocable living trust, then that is treated as just another form of personal ownership, so it should get a stepped up tax basis for federal income tax purposes, just as though it had been titled personally.
When you die, your will will be probated, and once it has been confirmed to him as beneficiary he can prepare a new deed transferring it to his name.
My son his named in my will as a recipient of my house. He expects to pay off the mortgage in the event of my death. So what does he have to do in order to have the deed converted to his name?
I am a widow and I have a mortgage on my home. Although I have three children, I would like to leave my home to one of my children. What is the best way to do this?
Write a will and specify exactly what you want to happen. The recipient will need to refinance the mortgage into their own name at that point.
MY parents bought our house in 1967 for 16k. My father died 6 years ago. At the time of his death the house the was worth 220k.
We moved my mom out 3 years later to a retirement living, and the house stayed vacant until we just recently sold it. (Vacant for 3 years) The neighborhood depreciated, so it only sold for 143k.
My father renovated almost the entire house prior to his death.
I want to make sure I’m understanding properly.
The step up would be 110k (half of house value at dads death)
Minus half of all improvements made to the house prior to dads death? Or is it the full amount of improvements? Example 30k in improvements, step up would be 15k (half?) or 30k (full amt?)
Ex. 125k step up. 143 minus 10k closing cost. 133k -125 (step up) is 8 in capital gains.
Or ? 140k step up. 110k + 30 in improvements 133k – 140. (No capital gains) ?
The tax basis for your father’s share of the house is $110K, half the value at the date of his death, if he was half owner. Your mom’s half is 50% of the original cost, plus 50% of the cost of improvements, if she owned half.
Our home was in a revokable Living Trust. Upon the death of my spouse the Living Trust became Irrevocable. So the trust now has its own Tax Id Number. I know I get the step up basis. However since the now irrevocable Living Trust owns the house, I suspect I do not get the $250,000 exclusion. Is this correct?
No you do not get the exclusion, or will you report the home sale on your tax return since you don’t own the home. But since the home has a stepped-up basis, the trust shouldn’t have much gain to report on sale, only the increase in value from date of death to date of sale.
Do these rules still apply when selling rental property. It was the only retirement income my mom was left with after my father passed. Now that income is gone & she lives off the sale.
If someone owns real estate, that real estate receives a stepped-up basis to the value at the time of their death, which reduces capital gains upon the sale. This applies to all real estate, not just residences.
Husband and Wife owned and lived in home continuously for over 20 years. Never took exclusion in prior years. Husband passed away in early 2018. Widow sold home in June 2018. Widow remarried in late 2018. Widow is now filing taxes as Married Separate. Can the now married Widow claim the $500,000 exemption? Home was sold before widow remarried.
It sounds as though she could. But there may not be much gain to report, if the home received a stepped up basis to the value at the time of his death for the portion owned by him.
My husband bought a duplex before we were married, it is in his name only in Florida and we have 2 (adult) children together. He does not have a will. What happens to the property if he dies?
It would depend on the laws of Florida. It might be that you’d get half and the kids would get the other half, but I don’t know for sure.
In 1961, my parents bought our home for $13,000. My father passed away in 2002 and this past year (2017) we sold her house for $95,000 (the proceeds to help pay for personal care home). Does she have to pay a capital gains tax on the difference? She’s 90 and receives social security and a small amount from my father’s pension.
She gets a $250,000 capital gains exemption when she sells her personal residence, so there is no capital gains tax based on what you wrote.
My husband died in 2005. I know I am eligible for the $250,000 exclusion. I understand that had I sold the house within two years of my husband’s death, I may have qualified for the $500,000 exclusion. I couldn’t move at that time because I needed to continue to provide an accessible home for our disabled son. I continue to be his full-time caregiver. The house is fully equipped for him with stair lift, rails, ramps, etc. Should I have tried to move us earlier, or is there any exception where the exclusion applied today could be higher than $250,000?
I don’t know of such an exception, but you can ask a qualified tax preparer to find out for sure.
So I know this site is for women, but I am struggling to find an answer to a question I have. My wife, who I lived with for 10 years, owned the home we resided in. For most of those years, I paid the mortgage. She planned to add my name to the deed but died before doing so. I had an attorney legally put the deed to the property in my name, then I later sold the home. There was little equity in the home, but I did reap a small sum from the sale. What capital gains am I responsible for? I trust the answer to this question will apply to other surviving spouses as well.
If the property was in her name when she died, then your tax basis is he same as the value on the date of her death. If it was your home, then you can exclude from tax up to $250,000 additional of gains. I’m guessing that will result in no taxable gain.
My husband owns 2 homes, we live in one currently in California. I am not on title on either properties.We have been married 10 years this June. I have lived in my current home for over 11 years. The value is 1.3 million in the residence we reside in, and the income property home is valued at 1.4 million.
What Happens in this case? What recommendations do you have for me?
I’m sorry, but I don’t understand your question, “What happens in this case?” In case what?
Ginita,
Thank you for your response. Based on what I have read, the wife will pay tax on current value, less sale expenses, less value of the house at time of husband’s death, less home improvements?
Would you please explain about the captured depreciations?
Thank you.
If the owner claimed depreciation as a deduction in figuring taxable rental income, then that will be “recaptured” at the time of sale and taxed then. Whoever prepares the tax return will use a program that makes the appropriate computations.
Hi, Ginita,
Would appreciate your feedback on the matter below:
Purchased a house in 1976 for 34,000.00 in MD
The Deed is under husband and wife’s name.
Remodeled the house through out and added lots of new additions.
Husband died 1989
House was not appraised at the time of death
The wife did not change the Dead and still is under both names.
Wife moved out 1991 and rented the house up to present time.
During rental period the house has had some expenses, has been renovated few more times.
Took depreciations each year.
Each year reported all rent revenues, expenses and depreciations.
Plan to sell the house this April. Either give the proceed to daughter in Europe or buy a joint property in Europe.
For cost bases, plan to claim the sell of the house less than sell expenses and less all improvements, recapture depreciations and pay capital gain taxes.
Do not have plan to make it primary resident and live in it for two years and claim capital gain tax exclusions.
Am I missing any points? Am I on the right track? Any suggestions?
You are correct that the home doesn’t qualify for the $250,000 capital gain exclusion since it wasn’t her residence for two of the five years before sale. Don’t forget that Husband’s half of it did get a stepped-up basis to the value at the date of Husband’s death, which will increase the tax basis of the home and decrease the capital gains.
Hi Ginita,
I have a question on step up basis in a community property state. What if the property/ies were placed into a trust….would the spouses half step up then? I see above that in a community property state, the entire basis can be stepped up, but how does any of that work if a trust is involved? Only the spouses’ half, or both, or none? Thanks so much for your help!
It depends on the trust. Most living trusts these days provide that the property transferred into the trust retains the same character it had before it was transferred in. So if it was community property, it remains community property, even though it is held in the name of the trust.
What happens when the wife did not live in the house for the 2 years prior to husband/s death.
Example: My friend’s husband died in Ohio and thru a Quit Claim gave her the house and 50 acres of land.
She will be filing a joint income tax for the 2018 year. His income, her income, money from the sale of
personal property (furniture, etc. from the house) and money from farm equipment (tractor and plows, etc.)
Due to holidays, etc., the house and land will not sell and close until 2019. When that house and land
is sold, what will her capital gains tax be, or what will her EXCLUSION be? The old farm house
is only selling for about 68,000 dollars, but the land will go for about $340,000.
I am Robert House the friend.
She should talk to an accountant who has good knowledge of the tax law in this area. If she inherited it, then there won’t be a gain, since she would have received a stepped-up basis to the value at his death. But if she received it by the quitclaim before he died and so it was not part of his estate, it would not have received a stepped up basis. In that case, she may be able to exclude the gain on the house by virtue of being married to him and it was his principal residence, but she likely can’t exclude the gain on the farmland, because the farmland is not a personal residence.
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.
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.
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.
(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).
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.
His share of the house and acreage received a stepped up basis at the date of his death. Nothing you do subsequently will affect that.
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.
If your daughter owns the house and sells it, she may have taxes to pay because she sold an asset that she owned.
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
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.
If you and your husband held your shares as community property, then all of your shares get a stepped up basis. If they were held in any other form, then only his share gets a stepped up tax basis.
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.
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.
It sounds like you’ve got it covered.
Thank you so much.
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?
The only portion of any capital gain that you will pay tax on is the increase in value over $250,000, since you held the home for at least two years.
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.
As I understand it, the maximum Calif income tax rate is 9.3%.
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
Yes, the portion of the home that belonged to your husband gets the stepped-up basis. Your son’s portion does not.
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 ?
Yes, you’ll have to get an appraiser or Realtor to tell you what it was worth in 2011 to peg that value.
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?
Any improvements made after her husband’s death increase her tax basis in the property.
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.
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.
Have an appraiser do an appraisal as of the date of death. I’m not sure the term for that, maybe a retrospective appraisal.
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?
You’ll need to see how it is characterized in the trust. Talk to your estate attorney to be sure.
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?
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.
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.
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.
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
IRC Sec 1014
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”?
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.
My mother passed away and in asking a CPA what we use as proof of the step up basis for the home value she made me feel like I could just ask a realtor to get us some comps at the time my dad died 18 years ago. Does that sound correct?
Yes. Have a real estate agent do an historical appraisal or comps.
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?
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.
Can she ask her local realtor to do a CMA for the date of his death?
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.
Mother dies 3 years before daughter sole heir gets around to selling. Nobody has lived in house for 3 years. Did daughter have to sell within 2 years of mothers death to avail herself of capital Gaines exclusion?
Since daughter did not live in home for 2 of 5 years prior to selling, she won’t qualify for the $250,000 exclusion for sale of her personal residence. But since the property likely received an increase in tax basis to the value at the date of mom’s death, she’ll only pay tax on the increase in value since then, minus costs of sale.
Thank You for the stepup information. Does this apply even if the house was not in a trust? Thanks, Cindy
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.
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.
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.
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.
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.
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.
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
This is a site that is geared toward women, but of course, widowers in the same circumstances can use the same information.
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.
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.
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?
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.
Hi Ginita, I have a very specific question. My husband and I purchased a home for 650,000 in CA and at the time the deed had both our names on it. When we refinanced about 6 years ago and the refinance company only put my husbands name on the deed. He passed away in April of 2020. I hopefully will have an “interspousal transfer” complete this week (Feb 2021) and the deed will be transferred into my name. The current value is 1.1M. Do I get to claim that his half is 550,000 and my half is 550,000 and therefore no Gain? OR, can I claim his half as 550,000 and I still need to claim my half as 325,000 (the original 50% from when we bought the house and it was jointly deeded). Also, we put a 25,000 Solar system, windows and a few other upgrades that probably total 40K. Also, is his half the amount the day of his death in April 2020 or the day the court transfers the deed to my name 2/2021 ? Obviously CA is ridiculously expensive and I’m thinking to move out of state to avoid financial ruin (somewhere else I can avoid a mortgage), but I’m worried about the capital gains taxes. Also, do I need to sell within 2 years or does it matter? Since I”m nearly 1 year past his death I thought I should ask. Thank you in advance ! I know my situation is unique.
Since the home was in his name alone at the date of his death, and in addition since it was likely community property even though in his name alone, the tax basis of the entire property will step up to the value at the date of his death. You say that the current value is $1.1 million, and it is likely that it was somewhat less at the date of his death in April 2020. You can ask a real estate broker to do an analysis to see what that value was on the day of his death. That value would include the upgrades you had made prior to that date, so you can’t claim those as additional tax basis. When you sell the home, your gain will be the sales price, minus cost of sale, and minus that value at the date of his death. You can claim up to $250,000 capital gain exclusion, and the rest, if any, will be taxable. If it is sold within two years of his death, you can also claim his capital gain exclusion of $250,000, but if gain doesn’t exceed $250,000, your exclusion alone will be sufficent and you won’t need his. If so, there is no need to rush to get it sold by April 2022.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
It is my understanding that rental properties will not be subject to that same cap.
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.
can the money owed on a reverse mortgage be deducted from the net capital gain?
No
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.
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.
My wife passed 3.5 years ago I follow the above but was wondering how this works if I buy a new home.
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.
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.
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?
Hi there,
So my parents bought their house 45 years ago for $75,000. My dad passed away 6 years ago. My mom still lives in the home but will be selling it next year. The current value of her home is $1.3 million dollars. With this example, would she pay capitol gains? Would she get the $500k deduction or just the $250k plus the step up thing discussed above?
If they held it as community property in a community property state, both halves got a stepped up basis to the value on his death. If they held it jointly, then only his half would get a stepped up basis. If he held it in his name alone, the entire ownership would get a stepped up basis. If it was held in her name alone, there would be no stepped up basis. After computing the gain on sale, she can deduct $250,000 as excluded gain for the sale of her principal residence.
Thank you for your reply, but I’m still confused with this stepped up basis rule. They bought the home together and they have held everything in a Living Trust. They have a reverse mortgage on the home. The home is in California. My dad passed away almost 6 years ago. Can you help me run the numbers so I understand it better? Home was purchased for $75,000. Improvements have been made over the past 45 years. The home was worth about $1 million at the time of my dad’s death. My mom plans on selling her home in 2020. It’s current value is $1.3 million. I believe you are saying she will receive the $250k deduction? What portion will she receive for my dad? What is “cost of sale” that you refer to? Her current income is under $37,000 a year. With this scenario, do you believe she will owe anything in capital gains? If so, how do you come to the amount she owes? Thank you in advance for your help.
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.
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?
If he owned half the house, then his half would get a step up in basis, and when his beneficiary sells the house down the road, she would use that stepped up basis.
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.
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.
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.
Hello my husband died on 1918 and I am selling the house because I can’t continue pay the Insurance and others bills .
since I perched the house I expected $20,000 currently I’m selling the house for $275,000 but I will received $ 254,000 can you help me I don’t know what to do
Thank you Gliceria M
You can call or send me a message thank you (7744041495)
When you sell the home, the escrow company will give you a form to sign saying that your gain is less than the $250,000 capital gain exclusion you can claim because it was your principal residence. That means you won’t even have to report the sale on your tax return. When you get the funds, put them into a savings account until you can get together with a financial advisor or knowledgeable friend to figure out your budget for the future, how much you’ll get in from income and how much you’ll need to draw from these funds (if any). That will let you decide how much of these funds to keep liquid for future needs and how much to invest for the future years from now.