Surviving Spouse Sale Period

Married couples who own a home as joint tenants with rights of survivorship, the surviving spouse inherits the home, along with their basis, and it does not trigger a taxable event.  Unfortunately, the capital gain exclusion is reduced to a single person's share unless the survivor disposes of the property in the granted time.

Married couples, filing jointly, have up to $500,000 of capital gain exclusion on qualifying sales.  As a single taxpayer, the survivor is only entitled up to $250,000 exclusion of capital gain.  For instance, if the home at the time of death is worth $900,000 with a basis of $400,000, the gain is $500,000.  If the surviving spouse sells the home, their exclusion is only a maximum of $250,000 which would make the other $250,000 subject to long-term capital gains tax.

However, there is an exception to the rule that if a sale occurs within two years of the death of their spouse, the survivor is entitled to the $500,0000 exclusion if the ownership and use tests are met prior to the death.  The two-year period begins on the date of death and ends two-years after that date which means the property needs to close and fund by that anniversary.