Capital Gains Tax Depends On Home Sale Profit

Added January 19, 2009 by Ilyce R. Glink

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Summary: When you sell a home after your spouse dies you may be able to keep some of the profits tax-free, depending on how much they were. The IRS currently allows taxpayers to keep up to $500,000 in profit tax-free if they've sold their home within two years of the spouse's death. To find out the tax consequences for certain you should contact an accountant, tax preparer or estate attorney.

Q: My father passed away six months ago. My mom is 87 and we had to put her in a nursing home as she has Alzheimer's. I have power of attorney for her estate and we sold her home. Does she have to pay taxes on that sale?

A: It depends on what her profit was at the time of sale. Your mom can keep up to $500,000 in profits tax free because her husband died within the past two years. (In past years she might have been limited if the sale of the home occurred in a year other than when her spouse died. But this rule was changed last year.)

If the profit on the sale of her property is more than $500,000, then she will have to pay long-term capital gains taxes. Because the issue of death and taxes can get quite complicated, if the profit on the sale of the home exceeds $500,000, you should talk to your accountant, estate attorney, or tax preparer for more details.

Jan. 19, 2009.

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Comments

Sue says

May 2, 2009 at 08:37 pm

We want to buy a home and the seller is claiming that he lived in the house for 2 of the last 5 years. We know that this is not true. Will we be stuck paying the taxes if we buy the home?

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Clare Leger says

July 3, 2009 at 04:40 pm

I think that the mother might be able to get a "stepped up" value on the home as of the date of the father's death.

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