September 10th, 2018 at 10:04 pm
Multiple Choice Question: If Wendy now sells her home, how much can she exclude from capital gains tax? Pick the best answer:
A. $250,000.
B. $500,000 if Wendy sells within the same calendar year that Henry died.
C. $500,000 if Wendy sells within 2 years after Henry’s death.
D. $500,000, regardless of when Henry died.
Answer: Before you dismiss this question as being too technical, keep in mind that knowing the answer may help you get a listing from someone in Wendy’s situation. As a general rule, an individual taxpayer can exclude from income tax up to $250,000 in capital gains for a property he or she has owned and occupied for at least 2 of the last 5 years. That amount is doubled to $500,000 for a married couple. But there’s a special rule if a spouse dies. Answer B used to be the law 11 years ago, even though it was shockingly unfair to people with spouses who died towards the end of the calendar year. Answer C is the correct answer, as long as Wendy has not remarried at the time of the sale.
This scenario may not come up very often. However, when it does, knowing that a surviving spouse only has 2 years after the spouse’s death to take advantage of the $500,000 capital gains tax exclusion should help you convince the owner to hurry up and list with you right away!
-Thank you to Karen Heyrend (Ventura Office) for suggesting this week’s legal tip.
Like what you see here? Sign up for more! Our free e-newsletter informs you of listings in your community, insider real estate tips, the latest in home trends, and more.
