Retirement Weekly: My spouse died just after we sold our second home, how do we handle the taxes?

by | Dec 30, 2022 | Stock Market

Dear Harry, My spouse passed away this year. Prior to his passing, we sold our second home (not our primary residence). We understand there will be capital-gains tax to pay. However, do we get a one-half step-up in basis due to my spouse passing away in the same tax year we sold the property even if he passed away after the sale of the home?

Dear reader, Unfortunately, the answer is no. As you appear to know, normally when you sell property you must pay a tax on the capital gain, which is the difference between the sale proceeds and the property’s tax basis. The basis is what you paid for the property plus the cost of any improvements. If the property were your home, you and your husband could exclude the first $500,000 of gain, $250,000 each. But this exception only applies to your personal residence. When the owner of property dies, the basis gets adjusted to the value on the date of death. When the co-owner dies, there’s a one-half adjustment. So, by way of example, if you and your spouse purchased the property for $200,000 and it had a fair market value of $500,000 when they died, the basis would have been …

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