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Tax notes on selling a house after a spouse has died

January 15, 2009 |  5:00 am

More on that tax exclusion of $500,000 on home sale profits per couple filing jointly comes from Steve Fishman, attorney and author of "Every Landlord's Tax Deduction Guide." (A change in the rental aspect of IRC 121 was detailed in a post Wednesday at L.A. Land.)

Fishman_2"The tax law provides that a married couple that files a joint tax return can exclude from their taxable income -- that is, avoid paying taxes on -- up to $500,000 of the profit they earn when they sell their home that they lived in for at least two out of five years prior to the sale.

"In the past, if one spouse died before the home was sold, the full $500,000 exclusion could be claimed by the surviving spouse only if the home was sold in the year that the spouses' last joint return was filed. This ordinarily meant that the house had to be sold during the year the spouse died. If the house was sold after this, the surviving spouse was limited to the $250,000 exclusion available for single taxpayers.

"Starting in 2008, a surviving spouse qualifies for the entire $500,000 exclusion if the house is sold any time within two years after the other spouse died. This gives the surviving spouse substantially more time to sell the house--particularly useful in this time of recession when many homes sit on the market for months before selling. However, this special rule applies only to unmarried taxpayers. A widow or widower who remarries and sells the home within two years after the death of the prior spouse can't use it and would likely be limited to the $250,000 exclusion."

Although this change took effect last year, in this market it's a boon to surviving spouses who want to sell to have the additional time to take advantage of the higher amount. But with home values tanking it may only matter to those who have been in their homes for decades.

--Lauren Beale

Thoughts? Comments?

Photo: Stephen Fishman. Credit: