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Surviving Spouse Can Receive $500,000 Tax Free in Sale of Home

Posted by Jamie Downey  March 24, 2009 08:36 AM

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My husband passed away in July 2008. I would now like to sell the home that we lived in and move into a small apartment or condominium. I expect the gain on the sale of the home to be approximately $400,000. How much of this gain will be taxable?

The sale of one’s primary residence gets beneficial treatment under the current tax law. Single filers can exclude from taxable income up to $250,000 of capital gain and married filers can exclude up to $500,000 of capital gain. This is clearly one of the most significant tax breaks afforded by the IRS. A surviving spouse such as you can receive the full $500,000 exclusion. However, there are a few requirements that you must meet.

1.) As a surviving spouse, you are allowed a period of two years from your husband’s date of death to sell the property and still receive the exclusion afforded to married couples. Thus, as long as you sell the property by July 2010, you can still receive the entire $500,000 exclusion.

2.) Both you and your husband must have used the home as your primary residence for at least two out of the five years prior to your husband’s death.

3.) Either you or your husband (or both of you) must have owned the home for at least two out of the five years prior to your husband’s death.

4.) For the two year period prior to your husband’s death, neither one of you could have taken the exclusion on another residence.

If you meet all of these requirements, you should have no taxable income on the sale of your residence.

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