Discussion:Sale of principal residence
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Discussion Forum Index --> Tax Questions --> Sale of principal residence
| 15 November 2005 | |
| Husband and wife own and lived in their principle residence for the last four years. Husband passed away this year. If the wife sale the house next year is she still entitled for $500,000 exclusion under IRS section 121? Or she has to sell it this year (the year that husband died). | |
Budrok@Aol.com (talk|edits) said: | 16 November 2005 |
| Must be able to file Joint with deceased spouse (meaning the year he died has to be sold | |
| 17 November 2005 | |
| Be careful, wasn't there a law change that requires 5 year ownership? I am pretty sure that was just covered in the tax seminar I attended. | |
| 18 November 2005 | |
| Just wanted to follow up, this issue has came up twice for me in the last two days. In looking at 2005 Publication 523, page 9 there is an ownership and use test that must be met. Unlike what I thought they said in the tax seminars, it appears possible to exclude some gain and yet not own the home for all of the 5 years. Take a look at the mentioned Publication 523. I am still reviewing notes from the tax seminar to see where I got the idea that 5 year ownership was now a must. Maybe in was in discussing proposed changes. | |
| 18 November 2005 | |
| Snooks, it's two years of the last five. And this is not a recent change. | |
| 19 November 2005 | |
| Thanks, I understand the rules that were in place a year ago. I simply thought I heard mentioned of a change, but have been unable to find it. | |
| 28 November 2005 | |
| I think DZCPA may have hit the nail on the head. The house is jointly owned, so in effect is divided in half. The husband's half should have little, if any gain upon sale (appreciation since death only). If the wife's half of the house has over $250,000 of gain then there would be tax to pay on that half. But would agree that in the year of death, a taxpayer would be able to also get the full $500,000 exclusion on a jointly filed tax return in addition to the step up in basis on the husbuand's half of the house. It seems a little unfair, as it would be impossible with deaths near year end. | |
| 28 November 2005 | |
| The five year ownership rule has to do only if the home was acquired in a like kind exchange. Living in it two years still applies with a like kind exchange. | |
| 4 December 2005 | |
| If it was jointly owned and the husband lived in the house two of the last five years before it was sold the wife has until the third anniversary of the husband's death to sell the house and take the $500,000. deduction.
Anuenue | |
| 5 December 2005 | |
| Anuenue....just read your post and I am not sure if this is totally correct. Can you state your source. I know there has been talk in Washington allowing a spouse to sell the w/i 1 yr of death and still be eligible for the $500k exclusion...especially when the spouse is a qualifying widow w/ dependents. Thanks. | |
| 10 December 2005 | |
| I would also be interested in the source of Anuenue's response. I attended a tax seminar a week ago, and IRS revenue agent still states the two out of 5 years ending on date of sale. Joint exclusion would have to be able to file a joint return. | |
| 10 December 2005 | |
| Anuenue is mistaken, there is a provision that allows a spouse to satisfy the ownership and use test of sec 121 using the deceased spouse's time (if the surviving spouse otherwise would not meet the test)but the exclusion amount is determined by filing status
Reg ยง 1.121-2(a)(4): Example (5). Married Taxpayers H and W have owned and used their principal residence since 1998. On February 16, 2001, H dies. On September 24, 2001, W sells the residence and realizes a gain of $350,000. Pursuant to section 6013(a)(3), W and H's executor make a joint return for 2001. All $350,000 of the gain from the sale of the residence may be excluded. Example (6). Assume the same facts as Example 5, except that W does not sell the residence until January 31, 2002. Because W's filing status for the taxable year of the sale is single, the special rules for joint returns under paragraph (a)(3) of this section do not apply and W may exclude only $250,000 of the gain. | |
| 20 December 2005 | |
| I have a question regarding the "ownership and use test". Exactly what criteria is used to prove the "use" portion? Is a driver's license with the home's address and a utility bill enough? | |
| 20 December 2005 | |
| Regarding step-up: If the client's are in a community property state and the house is considered community property under your state's laws, the step up is 100%. For a separate property state, see Sheldon's reply. | |
| 1 January 2006 | |
| If she remarries before the end of next year, and her new husband can prove two years of use, then I see no problem with claiming the $500,000 exclusion. Admittedly, this is an unlikely scenario. In any event, the gain should be relatively small because of the step up in basis under 1014. | |
| 23 January 2006 | |
| The spouse would be able to file as a married person if she is a qualifying widow. However, she would beed a dependent child to meet this test. The qualifying widow status is allowed for the year of the spouse's death and the two following, given that there is still a dependent child in the household. This is not very common because most people pass away after their children are grown. I think this is the 3 yrs that Anuenue is referring to. | |
| 23 January 2006 | |
| The $500,000 exclusion is only available if joint filing status is elected. Sec. 121(b)(2). This is not a change in the law. | |
| 30 January 2007 | |
| I don't see that anyone has mentioned the step up in basis for the deceased spouse's share. You are correct that the only way to get the $500,000 exclusion is a sale in the yar of death and a joint return. However if the home was jointly owned the is a step up in basis for 1/2 of the property. The surviving spouse the gets the $250,000 Sec 121 over her original basis. | |
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