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HOW LONG DOES $500,000 HOME-SALE EXEMPTION LAST AFTER SPOUSE DIES?
DEAR BOB: Regarding that $500,000 principal residence home sale tax exemption, how long does it last after a spouse dies if both spouses owned and lived in the home two of the last five years? Norma B.
DEAR NORMA: The surviving spouse has until the end of the tax year of the spouse's death to claim the Internal Revenue Code 121 principal residence sale tax exemption up to $500,000 for a qualified married couple filing a joint tax return in the year of the death.
But please don't panic and rush to sell the home. Presuming you are the surviving spouse, if your deceased co-owner spouse willed his share of the house to you, then you have a new "stepped-up basis" on that share (or on the entire property value if it is in a community property state).
In most situations, you need not be concerned about the lost $250,000 exemption if you don't sell the home by the end of this year. However, if your deceased spouse was not a co-owner on the title, then you should consider selling the home by the end of 2005 because you received no stepped-up basis as you continue to be the sole owner. Full details are available from your tax adviser.
TWO HOMES; ONLY ONE PRINCIPAL RESIDENCE SALE TAX EXEMPTION
DEAR BOB: I own two houses, about 75 miles apart. On weekdays, my wife and I stay in one house. On weekends, we go to the other house. We have been doing this for about two years. If we decide to sell our "weekend house," can we qualify for that $250,000 or $500,000 tax exemption you often discuss? Roger F.
DEAR ROGER: No. To qualify for the $250,000 principal residence sale tax exemption (up to $500,000 for a married couple filing a joint tax return), you must have owned and occupied the home at least 24 of the 60 months before its sale as your primary residence.
The house where you spend the weekdays appears to be your principal residence and the other house is your secondary home. Therefore, if you sell that second home, since you can't meet the principal residence test, then your capital gain will be taxed at the 15 percent federal tax rate (or less), plus the state tax rate. Your tax adviser has full details.
The new Robert Bruss special report, "24 Key Questions: Living Trust Secrets Reveal How to Avoid Probate Costs and Delays," is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet PDF delivery at www.bobbruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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