Home Sales Exception

Q: Can my Mother claim my Father’s home sales exception? My father died this year and my mother wants to sell their home and buy something smaller. Does she still have the right to use my father’s $250,000 home sales tax exemption? If she does, how long does she have?

A: When your mother has straightened out the title for the house and removes her husbands name so she holds title only in her name alone she can sell the house. If she sells it in the year of his death, she can claim up to $500,000 tax-free principle residential profit. That is if they both occupied it at least two of the five years before the sale. But, if you mother waits until the next year to sell, then she will only receive a $250,000 single principle residence sale tax exemption. This is not all that bad. The reason is after your mother receives your late father’s share of the house, she will receive a new stepped-up cost basis as of the date of his death for the inherited half of the house. If the house is in a community property state, and if your father left his half of the house to your mother, the house’s entire market value is stepped-up to market value as of the date of your father’s death. Either way the taxable capital gain is very low. She really should discuss this with her tax advisor to understand all the rules in the year of your father’s death. Good luck and I hope this helps.

Posted by Donald Urschalitz P.A. at April 28, 2005 07:23 PM