Does the loss of a spouse cut off the widowed spouse’s opportunity to avoid up to $500,000 in gain on the home’s sale? Not if the general rules are met (see, https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-residence-real-estate-tax-tips) and two additional favorable terms are satisfied if needed.
If a widowed taxpayer doesn’t meet the 2-year ownership and residence requirements on their own, the following rule helps-
If the widowed spouse hasn’t remarried at the time of the sale, then they may include any time when the late spouse owned and lived in the home, even if without the widowed spouse, to meet the ownership and residence requirements.
The gain exclusion may be increased from $250,000 to $500,000 if the widowed spouse meets all of the following conditions-
1. The widowed spouse sells the home within 2 years of the death of their spouse;
2. The widowed spouse hasn’t remarried at the time of the sale;
3. Neither the widowed spouse nor the late spouse took the exclusion on another home sold less than 2 years before the date of the current home sale; and
4. The surviving spouse meets the 2-year ownership and residence requirements (including the late spouse’s times of ownership and residence if need be).
For more info see page 4, https://www.irs.gov/pub/irs-pdf/p523.pdf
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𝐓𝐡𝐨𝐦𝐚𝐬 𝐉𝐚𝐦𝐞𝐬 𝐂𝐚𝐫𝐫𝐨𝐥𝐥, 𝐏.𝐂. 𝐢𝐬 𝐚 𝐥𝐚𝐰 𝐟𝐢𝐫𝐦 𝐟𝐨𝐜𝐮𝐬𝐢𝐧𝐠 𝐨𝐧 𝐟𝐞𝐝𝐞𝐫𝐚𝐥 𝐚𝐧𝐝 𝐬𝐭𝐚𝐭𝐞 𝐭𝐚𝐱𝐞𝐬 𝐭𝐡𝐚𝐭 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐬 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥𝐬 𝐚𝐧𝐝 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬 𝐰𝐢𝐭𝐡 𝐭𝐚𝐱 𝐡𝐞𝐥𝐩 𝐚𝐧𝐝 𝐬𝐨𝐥𝐮𝐭𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐭𝐨𝐝𝐚𝐲 𝐚𝐧𝐝 𝐭𝐨𝐦𝐨𝐫𝐫𝐨𝐰.
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