New Tax Law Protects Widows and Widowers Selling Their Homes

The following is from Tom Herman Tax Break for Surviving Spouses Selling Homes, WSJ.com, Jan. 20, 2008:

Some widows and widowers thinking of selling their home may benefit from a new law enacted last month.

The new law effectively gives them more time to sell and still be eligible for the maximum home-sale tax break available for married couples who file jointly. This change is effective on sales or exchanges beginning this year. Congress passed the new law to provide relief for surviving spouses. * * *

If you're married and file your federal income-tax return jointly with your spouse, you typically can sell your main residence and exclude as much as $500,000 of the gain from gross income. If you're single, the limit is $250,000.

To qualify for the maximum exclusion, you must have owned the home -- and lived in it as your primary residence -- for at least two of the five years prior to the sale.

Under the old law, a surviving spouse would have been eligible to claim the maximum $500,000 exclusion only if he or she filed a joint tax return for the year of death and sold the home during that same year * * *.

The new law includes an important change: A surviving spouse who hasn't remarried typically may be eligible to claim the full $500,000 exclusion from the gain on the sale of a principal residence owned with the deceased spouse if the sale occurs not later than two years after the date of death of the spouse * * *.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.